Rivian Automotive (NASDAQ: RIVN) has seen its stock plummet dramatically, losing 92% of its value since its IPO in late 2021. Despite this steep decline, Rivian still presents an opportunity for patient investors looking to capitalize on the long-term potential of electric vehicles (EVs). Let’s analyze the benefits and drawbacks of investing in Rivian to determine if it still holds the promise of generating millionaire returns.

What happened to Rivian’s buy thesis?

The electric vehicle market today is significantly different from what it was three years ago when Rivian entered the scene. Back then, the industry was booming, largely influenced by Tesla, which had shown that electric vehicle manufacturers could be profitable. Rivian appeared to have a unique advantage as traditional automakers like Ford, General Motors, and Stellantis were late to the EV market, giving Rivian a chance to cater to the underserved segment of pickup trucks and large SUVs.

However, the reasons that once supported Rivian’s peak market valuation of over $153 billion (it’s currently valued at just over $10 billion) have largely diminished. Growth in the EV sector has stagnated, while established car manufacturers are now overwhelming the market with various models, especially in Rivian’s primary markets of SUVs and trucks.

Worryingly, the momentum now seems to favor these established brands, as they can rely on their strong market presence and extensive dealership networks to attract more buyers.

The market dynamics have shifted dramatically. For instance, during the third quarter, Ford’s electric F-150 pickup truck saw its sales double compared to the previous year, reaching 7,162 units. Similarly, GM has enjoyed substantial success with models like the Cadillac Lyriq, a luxury SUV, which experienced a 139% increase in sales to over 7,000 units. Both vehicles directly compete with Rivian’s premium trucks and SUVs.

What is Rivian’s path forward?

Rivian’s earnings from the second quarter reveal the depth of its challenges. Sales increased by only 3% year-over-year to $1.12 billion, while operating losses grew by 7% to $1.38 billion. The forthcoming Q3 earnings report, set for release on Nov. 7, might not present a more promising outlook, especially considering vehicle deliveries have dropped by 36% year-over-year to just 10,018 vehicles, significantly below analysts’ expectations of 13,000.

Despite these difficulties, Rivian is not giving up. CEO R.J. Scaringe is optimistic about achieving a slight gross profit by Q4 2024 through strategic reductions in material costs and improved factory efficiencies. If these strategies succeed, they could pave the way for the company to reach profitability in the future.

Additionally, Rivian plans to boost its growth with the introduction of a new SUV called the R2, built on a newly developed mid-size vehicle platform. Priced starting at $45,000, the R2 will be significantly cheaper than Rivian’s flagship model, the R1S, which starts at $77,000. While offering lower-priced vehicles might not greatly enhance Rivian’s profit margins, it can help transition the company towards a more volume-based business strategy.

Is Rivian a millionaire-maker stock?

Regrettably for potential investors, Rivian is in a precarious situation. For the foreseeable future, the main focus of management will likely be on survival rather than generating significant returns for shareholders.

With $7.87 billion in cash and short-term investments available, the company is positioned to manage its current cash burn for several more quarters. However, as time passes, Rivian might need to seek external funding sources, which could lead to equity dilution and diminish existing shareholders’ claims on future earnings. Therefore, investors should consider waiting to buy Rivian stock until the company can provide a credible plan for achieving profitability.

Will Ebiefung does not hold positions in any of the stocks discussed. The Motley Fool has positions in and recommends Tesla. The Motley Fool also recommends General Motors and has suggested the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

The Motley Fool is a YSL News content partner providing financial news, analysis, and commentary aimed at helping individuals take control of their financial decisions. Its content is created independently of YSL News.

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