After a blockbuster IPO in late 2021, shares of electric vehicle (EV) manufacturer Rivian (RIVN) have trailed the broader markets by a wide margin. Valued at a market cap of $10.37 billion, RIVN stock currently trades 94% below its record high. This means the stock would have to surge over 1,600% from current levels to recoup the losses of investors who purchased it at all-time highs.
Last Friday, Rivian ended the session down 3% after the EV startup lowered its production forecast for 2024. The company expects to manufacture between 47,000 and 49,000 vehicles this year, below its initial estimated 57,000 units. It attributed the lower forecast to a “production disruption due to a shortage of a shared component” for its commercial van and R1 vehicle lineup.
Rivian noted that the supply shortage began in Q3 of 2024, and has become more acute in recent weeks.
Should You Buy the Dip in RIVN Stock?
Rivian continues to disappoint Wall Street, as its vehicle deliveries in Q3 fell by 36% year over year to 10,018 units, below estimates of 13,000 units. While Rivian tied its production decline to disruptions and supply shortages, it will soon have to deliver on its lofty promises and regain investor confidence.
In early 2024, Rivian claimed it would end the year with a positive gross margin as it ramped up vehicle production. However, in Q2, it reported a gross loss of $33,000 for every vehicle it sold. In fact, Rivian’s gross loss margin widened to 38.9% in the June quarter compared to 36.8% in the year-ago period. It seems almost impossible that Rivian will report a positive gross margin in the second half of 2024.
Investors should note that gross profit is the difference between sales and manufacturing costs, such as raw materials and labor. So, Rivian spends more to manufacture and deliver its vehicles than it earns by selling them.
Rivian reported revenue of $1.16 million in Q2, up 3.3% year over year. However, its gross losses grew by 9.5% to $451 million, while operating losses stood at $1.37 billion.
The EV maker ended the June quarter with less than $6 billion in cash, which suggests it can support losses for less than a year, given the current burn rate and the massive capital expenditures required to ramp up its manufacturing capabilities. That indicates Rivian will soon have to raise additional capital via debt or equity funding. Given its unprofitable business operations, Rivian will likely raise equity capital, diluting existing shareholder wealth.
Is Rivian Stock Trading at a Discount?
The automobile sector is highly capital-intensive, and will eventually require sizeable investments for Rivian to benefit from economies of scale. Moreover, it must compete with established EV players such as Tesla (TSLA) and legacy rivals, including General Motors (GM). For instance, in the September quarter, General Motors reported a 60% jump in EV sales, selling more than 32,000 units.
Rivian’s tepid gross margins, dwindling cash balance, and rising competition make it a high-risk investment at current multiples.
Out of the 24 analysts covering RIVN stock, 11 recommend a “strong buy,” one says “moderate buy,” 11 recommend “hold,” and one suggests “strong sell.” The average 12-month target price for RIVN stock is $17.83, about 73% higher than current prices.
