Buying the right stock at the right time can transform your life. For example, if you had invested $10,000 in electric vehicle (EV) industry leader Tesla in 2014, you would have a whopping $245,300 today. That's a return of over 2,430% in just a decade. Could Rivian Automotive (RIVN -2.78%) be the next best thing? Let's explore the pros and cons of this EV start-up to decide if it has multi-bagger potential over the long term.
The hype has faded
Rivian was at the top of the world when its shares became available through an initial public offering (IPO) in 2021. This was a different time for the EV industry. Tesla had recently become profitable, proving the technology was here to stay. And Rivian's lineup of high-end trucks and EVs promised to fill an overlooked opportunity in the market.
With a starting market capitalization of over $100 billion, the company immediately became America's second-most-valuable automaker behind Tesla -- leaving traditional marques like Ford Motor Company and General Motors in the dust. In hindsight, this made very little sense. And the market quickly soured on Rivian as growth stalled and rivals began offering products like the F-150 lighting, Silverado EV, and Cybertruck, which took over its niche.
Business growth is stalling
Rivian's third-quarter revenue fell 18% year over year to $874 million on a decline in both production and deliveries. To be fair, the EV industry is much more competitive now than it was when Rivian went public. And macroeconomic challenges like inflation and high interest rates probably aren't helping consumer appetite for its high-end cars.
But it's hard to make any excuses for Rivian when rival products like the Tesla Cybertruck are doing so well. According to Kelley Blue Book, Elon Musk's polarizing vehicle has sold a whopping 28,240 units so far this year, trouncing Rivian's R1T, which has only sold 10,387 units. This is despite the Cybertruck's higher sticker price, with a base price of $82,235, compared to Rivian's R1T, which starts at $71,700.
Worse still, Rivian lost an average of $39,130 on every car it sold -- up from $30,448 last year. With a gross margin of negative 45%, it costs the company more to manufacture and deliver its cars than it can recoup by selling them.
CEO Ryan Scaringe believes he can change the situation. He claims the company is on track to achieve gross profitability in the fourth quarter by improving revenue per unit and variable costs per unit. This will involve selling regulatory credits, improving materials costs, and unlocking manufacturing efficiencies. But this doesn't fix Rivian's core problem with heavy competition and poor top-line growth.
Can the situation be turned around?
Image source: Getty Images.
There are several things Rivian can do to try to turn its situation around. The first step will be to secure the funding needed to stay in business. To that end, the company has partnered with industry giant Volkswagen Group to launch a $5.8 billion joint venture to focus on creating EV software and architectures. Rivian will benefit from cash infusions, while Volkswagen will get access to its more advanced technology.
While this deal makes sense in the short term, it is alarming to see Rivian giving up part of its economic moat to a potential competitor. Volkswagen vehicles are expected to begin using Rivian's architecture by 2027.
All this being said, I'm still cautiously optimistic about Rivian. The company doesn't seem to be a life-changing buy right now. But underneath the noise, it makes quality products that consistently win awards for safety and consumer satisfaction. And eventually, enough buyers might take notice. While it's too early to buy Rivian stock, investors should keep it on their watch list pending more information.
