What Happened to Rivian’s Original Investment Thesis?
When Rivian debuted, the EV industry looked different. Market leader Tesla had already shown that pure-play EV manufacturers could operate profitably at scale, while traditional automakers like Ford, General Motors, and Stellantis were only beginning to join the EV market. Rivian aimed to carve its niche by focusing on electric trucks and SUVs, targeting a segment Tesla hadn’t fully entered.
However, since then, Rivian’s valuation has plummeted from a peak above $153 billion to just over $10 billion. Pure EV companies have faced slower growth, while legacy automakers have introduced their own EV models, rapidly increasing competition. For Rivian, this has been particularly challenging in its core SUV and truck segments. Established automakers have quickly adapted to the EV transition, leveraging their well-known brands and extensive dealer networks to reach a broader customer base.
Ford, for example, sold 7,162 units of its electric F-150 Lightning in Q3 2023—a year-over-year increase of 100%. GM has also experienced success, particularly with its Cadillac Lyriq, a luxury SUV, which saw a sales jump of 139% to over 7,000 units. Both models are direct competitors to Rivian’s high-end trucks and SUVs.
Rivian’s Road Ahead: Challenges and Strategies
Rivian’s financial reports for the second quarter underscore the challenges it faces. Sales rose a modest 3% year-over-year to $1.12 billion, but its operating loss increased by 7% to $1.38 billion. Rivian’s upcoming third-quarter earnings, expected on November 7, are unlikely to show much improvement; the company’s vehicle deliveries reportedly dropped by 36% year-over-year to just 10,018, far below analyst expectations of 13,000.
However, Rivian is not passively accepting these setbacks. CEO RJ Scaringe has outlined plans to improve the company’s gross margin by Q4 2024, focusing on cost reductions and factory efficiency enhancements. If successful, these initiatives could bring Rivian closer to achieving operational profitability in the long term.
In addition to cost-cutting, Rivian plans to introduce a more affordable SUV, the R2, in an attempt to expand its customer base. Priced at $45,000, the R2 would be a more budget-friendly alternative to Rivian’s flagship R1S SUV, which starts at $77,000. While the R2 may not yield high margins initially, it could help Rivian shift toward a higher-volume business model over time, bringing in more sales and brand recognition in the competitive EV market.
Is Rivian a Millionaire-Maker Stock?
For now, Rivian remains in survival mode. The company’s primary goal over the next few years will likely be maintaining financial stability rather than delivering substantial returns to shareholders. Rivian’s balance sheet currently holds $7.87 billion in cash and short-term investments, giving it a cushion to sustain its cash burn for several more quarters. However, without substantial improvements in profitability, Rivian may eventually need to seek external funding, which could dilute existing shareholders’ equity and reduce potential returns.
While Rivian’s stock may not yet be a strong buy, especially for risk-averse investors, the company’s efforts to streamline operations and introduce a more accessible product line suggest it has not given up on its long-term vision.