The sustainable-energy industry presents many interesting opportunities for investors. One of the more popular choices among green-energy investors is in electric vehicles (EVs). While I'm sure you're familiar with Tesla, other players, such as Rivian (RIVN -1.09%), are beginning to emerge onto the scene.
Right now, Rivian stock trades for just $10 per share -- narrowly above its 52-week low. While this might tempt some investors to think that now is an opportunity to buy the dip, I see Rivian's depressed price action as warranted.
Below, I'll break down what's going wrong at Rivian and why this is a stock to avoid like the plague.
Rivian is selling lots of cars, but it comes with a catch
Let's begin with the positives. I'm not a car enthusiast, but I must admit that Rivian's cars look pretty cool. In my neck of the woods (greater Philadelphia), I've noticed a rising number of Rivian cars on the road.
During the first quarter of 2024, Rivian delivered 13,588 cars, which represented an increase of 71% year over year. Moreover, the company unveiled a series of new mid-size SUV models -- implying that demand for its trucks is strong.
While this might all seem encouraging, the table below illustrates one glaring issue with Rivian's business.
| Category | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
|---|---|---|---|---|---|
| Vehicles produced | 9,395 | 13,992 | 16,304 | 17,541 | 13,980 |
| Vehicles delivered | 7,946 | 12,640 | 15,564 | 13,972 | 13,588 |
| Revenue | $661 million | $1.1 billion | $1.3 billion | $1.3 billion | $1.2 billion |
| Gross profit per vehicle delivered | ($67,329) | ($32,595) | ($30,648) | ($43,372) | ($38,784) |
Data source: Rivian Investor Relations.
At first glance, the results above might look good. Rivian is doing an impressive job scaling up production and, for the most part, can sell and deliver the cars it's manufacturing.
The problem surfaces when you look at the company's gross profit per car. At the end of the first quarter, Rivian lost $38,784 for each vehicle that it delivered. Think of it this way: For every $1 that Rivian gets for its cars, the business loses $0.38. This is a prime example of upside-down unit economics.
Image source: Getty Images.
Should you invest in Rivian stock?
While the EV realm is filled with investment opportunities, I don't see Rivian as too compelling. It's good to see that the company is ramping up production and able to generate rising revenue. Clearly, there's some demand for its cars, and the revenue figures above indicate that the company has been able to command some attractive pricing.
Furthermore, the company's gross profit per vehicle is trending in the right direction. This time last year, Rivian lost $67,000 per vehicle delivered. The company has been able to trim these losses by more than 40%, thanks to improving materials costs and more efficient production processes.
Nevertheless, costs are still outpacing Rivian's revenue acceleration. This results in a business that continues burning significant cash, despite some marginal reductions in operating losses.
On top of all of this, Rivian faces intense competition. And bigger counterparts, like Tesla, are doing whatever they can to outmaneuver the competition. For example, over the last year, Tesla has resorted to aggressive price reductions on its vehicles to make them look more attractive than competing EVs. Yet even with these price cuts, Tesla still remains profitable on each car that it sells.
I think that Rivian is stuck between a rock and a hard place. Sure, the company might eventually turn a profit on its vehicles, but this will take years to achieve. And in that time, companies like Tesla are using its excess cash flow to reinvest in other growth initiatives beyond EVs.
For all of these reasons, I would avoid investing in Rivian stock. While shares might look cheap, there's a reason for it.
The most prudent strategy is to sit on the sidelines and monitor the company's progress over the next several quarters. Should Rivian show some real progress and a path toward consistent profitability, long-term investors will have ample opportunities to buy the stock along the way.
