Is Rivian Stock a Buy?

Since hitting the market in 2021, Rivian Automotive (NASDAQ: RIVN) has offered investors potential instead of results. Its cars boast excellent design and performance. However, management has been unable to translate these advantages into sustainable shareholder value.

Production and delivery figures consistently disappoint. Meanwhile, the stakes are getting higher as more brands race to compete in the luxury SUV side of the electric vehicle (EV) opportunity. Let's dig deeper to find out what these trends could mean for Rivian's long-term performance.

Results continue to disappoint

Rivian has a long track record of disappointing its shareholders. Third-quarter deliveries were no exception, falling 36% year over year to just 10,018 vehicles (compared to analyst expectations of 13,000). The company also cut its 2024 production target from 57,000 units to between 47,000 and 49,000.

Management blames the shortfall on production disruptions and supply shortages. However, by now, the market is likely growing tired of these excuses, especially as the stakes grow higher.

Earlier this year, CEO R.J. Scaringe promised to achieve gross profitability by the fourth quarter -- a goal that will likely rely on economies of scale to spread fixed costs over a wider number of vehicles. With a gross loss of almost $33,000 per vehicle in the second quarter, Scaringe's promise looked like a tall order then. Now, it seems practically impossible.

The importance of gross profitability

Gross profits represent the revenue that remains after selling a product and subtracting direct production costs like materials or factory labor. It shows whether a company's business model is viable and capable of scaling into profitability. Unfortunately for Rivian, it still costs more to manufacture and deliver its cars than it can earn by actually selling them.

While second-quarter revenue grew just 3.3% to $1.16 million, Rivian's gross losses jumped 9.5% to $451 million, contributing to an operating loss of $1.4 billion in the period. The company only has around $5.8 billion in cash and equivalents on its balance sheet, so it can only sustain a few more quarters of these losses, especially considering other cash outflows like capital expenditures needed to build and equip its factories.

Image source: Getty Images.

Most cash-burning companies meet their shortfalls by raising outside capital through debt or equity dilution. Rivian used these strategies to raise $2.8 billion through bonds and convertible notes in 2023. However, while cash infusions allow Rivian to maintain operations, they can hurt shareholders by reducing their claim on earnings and the risk of insolvency if the company becomes unable to service its debts.

Time is ticking

Rivian is no longer the cool and quirky company that can maintain a massive valuation just for existing. For better or worse, EVs are nothing special now. Legacy automakers like General Motors are making huge strides in the industry, taking advantage of their brand recognition and extensive dealership networks to grow while Rivian is stuck in neutral.

The macroeconomic situation isn't the problem because other automakers are succeeding where Rivian is failing. In the third quarter, GM saw its EV sales jump 60% year over year to 32,095 units. Its Cadillac brand helped lead the charge with its category-leading Lyriq, a midsize SUV that competes directly with Rivian's upcoming R2 platform.

But while Rivian stock is not a buy right now, it isn't time to give up hope. Investors should wait on the sidelines for convincing proof that the company can find a pathway to profitability and turn this situation around.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.