Down 92% since its initial public offering (IPO) in November 2021, Rivian automotive industry (NASDAQ: RIVN) highlights the risks of buying a stock too early. The electric vehicle (EV) maker failed to live up to its hype as ruthless spending and competition eroded its business.
Can management turn the situation around? Let’s see what the next three years may have in store.
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When it hit the public market in 2021, Rivian was the second most valuable US automaker in the worldbehind Tesla. Of a market capitalization of more than $100 billion, it dwarfed rivals Ford Motor Company And General engines despite the fact that hardly any income was reported. Clearly, the The hype had overcome the fundamentals. But even though Rivian’s stock has fallen back to earth (current market cap: $10.5 billion), the stock is still not necessarily a good value.
Third quarter earnings were dismal. Revenue fell 35% year over year to $874 million, that is a bad sign for a growth-oriented company that will need to scale its business model to profitability. Additionally, the company generated a gross loss of $392 million, meaning it costs more to make and deliver its cars than it can recoup by selling them.
CEO RJ Scaringe wants to turn the situation around relatively quickly. He expects Rivian to have one gross profit in the fourth quarter due to higher average sales prices, better production efficiency and lower material costs. If successful, it could mark a turning point for the company and open the path to net revenue through scale and cost savings.
While Rivian’s 2024 delivery forecast of 50,500 to 52,000 vehicles (compared to 50,122 in 2023) remains unimpressive, new, lower-priced models like the R2 and R3 midsize SUVs (starting at $45,000) could boost growth by boosting the company’s supply business more affordable when they are available. is expected to start in the first half of 2026.
Unlike Tesla, which has risen about 40% since Trump’s election victory on November 5, Rivian’s shares initially reacted poorly to the news. They fell about 7% before recovering a week later. There are several reasons why investors may fear the new administration.
On the campaign trail, Trump expressed skepticism about what he called “electric vehicle mandates.” which ones are policies designed to force a transition to electric vehicles by limiting tailpipe pollution and tightening fuel economy standards. The regulations generally make gas-powered cars more expensive for consumers and more expensive for automakers to produce, accelerating the adoption of greener technologies.
The $7,500 tax credit for electric vehicle buyers could also be on the chopping block. And if this is removed, Rivian cars could become more expensive compared to their gas alternatives.
All this being saidLess government intervention in the EV industry could also have some benefits. Although the changes will likely hurt in the short term, a freer market could give Rivian more room to grow by eliminating competition from traditional automakers which are essentially forced to transition to electric vehicles at a pace that could outpace consumer demand. This excessive competition is likely to stifle Rivian’s growth potential.
The next three years will make or break Rivian. The company must move to gross profitability – and possibly net income – by scaling the business model. Success will likely depend on the reception of the new, cheaper vehicles expected to hit the market in 2026.
But while Rivian has a nice one clearly plan to create shareholder value, I still think it is too early to buy the shares. As it stands now, Rivian is one “growth” stocks that doesn’t grow. And investors should expect a continued downward trend until this situation changes.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.
Where will Rivian be in three years? was originally published by The Motley Fool
