Every investor wants to find a diamond in the rough -- that overlooked stock that can deliver multi-bagger returns over the long term. Rivian Automotive (RIVN -2.78%) could fit the bill if the electric vehicle (EV) industry regains its mojo. But this truck and SUV maker must navigate some serious near-term roadblocks before it gets there.
Let's discuss what the next 12 months might have in store for Rivian and its shareholders.
Replicating Tesla's strategy -- with a twist
Tesla rose from a niche EV start-up to a leading automaker in just over a decade. This achievement provides a valuable blueprint for rivals like Rivian as they tackle the opportunity. By entering the market with high-priced luxury models like the Roadster and Model S, Tesla established itself as an aspirational brand, which created significant pent-up demand for its products when it slowly moved downmarket.
Rivian is now in a similar position to Tesla in the early 2010s. Its 2025 R1T and R1S start at around $72,000 and $78,000, respectively, putting them out of reach for most people. But CEO R.J. Scaringe has ambitious plans to lower prices and dramatically expand Rivian's vehicle lineup.
In March, the company announced three new models -- the R2, R3, and R3X -- based on its new midsized platform. The base R2 model is expected to start at around $45,000 for the 2026 model year. It could help jump-start the company's stalling growth by giving it the economies of scale to overcome its challenges with abysmally low margins.
Rivian needs growth
RIVN Revenue (TTM) data by YCharts.
As a growth stock, Rivian's thesis depends on its ability to grow fast enough to overcome operating conditions that would probably be unacceptable for a more established company. Second-quarter earnings highlight how difficult this process might be.
Revenue declined by around 4% year over year to $1.16 billion, as the company's expensive lineup seems to be getting stale. Margins remain abysmal, with Rivian generating a gross loss of $33,705 per vehicle delivered despite their high sticker prices. That's before even considering operating expenses like research or office salaries.
In total, Rivian burned through around $1.4 billion in Q2 operations, which is alarming since its balance sheet only contains cash and equivalents worth $5.76 billion.
The company will likely need to turn to outside sources of capital like shareholder dilution (creating and selling more stock), which will reduce current investors' claim on future revenue by expanding the number of shares outstanding. But while dilution is never fun, it can be a good trade-off if the new capital is used to create long-term value.
What will the next 12 months have in store?
The next 12 months could make or break Rivian. But Scaringe is optimistic, promising investors that his company can turn its first gross profit by the fourth quarter. This would make the $33,705 per car that Rivian lost in Q2 drop to just zero by the end of the year, without help from the new R2 vehicles expected to launch next year.
Image source: Getty Images.
Management plans to achieve this by optimizing its manufacturing techniques to reduce material and fixed costs. The company will also lean into non-vehicle revenue streams like servicing and financing.
If this plan is successful, Rivian's gross profitability would demonstrate a clear pathway to operating profitability -- especially as its next generation of mass-market vehicles helps it scale up its business. While the Rivian isn't a buy yet (because seeing is believing), the stock has a place on your investment watchlist.
