The electric vehicle (EV) market hit some speed bumps in the last few years. While sales are still growing, the recent sales trajectory hasn't matched what many investors had hoped for.
Led by Elon Musk's Tesla, the first few years of the modern EV era saw explosive, exponential growth; it seemed the electrification of the U.S. vehicle fleet was not only inevitable, but also imminent. Full electrification appears to be much further off now and EV stocks -- aside from Tesla -- have struggled. Rivian Automotive's (RIVN -2.78%) stock price, for instance, is down about 41% so far in 2024.
Despite recent struggles, Rivian -- and the whole EV market for that matter -- is still in its relative infancy. Can Rivian's share price recover? What might the future have in store? Let's take a closer look.
Based on published reviews and feedback, customers and critics appear to love Rivian's vehicles, even though Rivian doesn't have an extensive lineup. Most automakers offer a bevy of vehicles across classes hoping to capture as much of the market as possible. Opting for quality over quantity, the company only offers two vehicle models at the moment. Both the R1S (an SUV) and the R1T (a pickup truck) score top marks from critics, earning awards like J.D. Power's "best ownership experience" and MotorTrend's "truck of the year."
The customers agree. Rivian earned the No. 1 spot in Kelley Blue Book's customer satisfaction survey. Its customers are happier with their purchase than any other brand.
That's important. Delivering a product as well loved as Rivian's is no easy task and it's a great home base from which a company can work to win in other areas, like becoming profitable.
Rivian's vehicles are expensive
While earning top marks across the board in the quality of your product is impressive, it helps when you spare no expense. Rivian has an enormous cost to produce each vehicle and despite a hefty starting price of about $70,000, the company estimates that it loses about $40,000 per vehicle. That's not a great position to be in and it doesn't just affect profitability, it affects sales.
The fact is, that price tag significantly constrains Rivian's potential customer base.
Rivian had a tough quarter, but there are some positive signs
Rivian's sales retreated last quarter, with top-line revenue shrinking both quarter over quarter and year over year. Take a look at the chart showing Rivian's slowing sales growth over the last few quarters and its decline in Q3.
RIVN Revenue (TTM) data by YCharts
While the lack of sales growth was partially attributed to some issues in its supply chain, the lion's share of the blame can be placed on softening demand for EVs. The company needs a turnaround here.
Even if it can boost sales, however, as stated, Rivian is still losing money on what it sells, posting a net loss of $1.1 billion last quarter. That's a lot to burn, but this is actually one of the few bright spots in the direction of last quarter's earnings. The company shrank its net loss considerably both year over year and quarter over quarter, in part because the company has worked to reduce material costs, which it says it cut by 20% this quarter.
A new infusion of cash could be a game-changer
Perhaps the best news has come from Volkswagen (VWAP.Y 0.16%). Last month, the veteran carmaker announced a three-year joint venture that could result in Rivian receiving a total of $5.8 billion by the time it's completed. This partnership, with multiple moving parts and various milestone markers needed to spark the next round of investment, will provide a much-needed boost to the company's balance sheet. Teaming up with a company like Volkswagen could do wonders to instill faith, boost sales, and ultimately change Rivian's trajectory.
Rivian also was able to negotiate a $6.57 billion conditional loan from the Department of Energy to help build an EV manufacturing facility in Georgia. The loan isn't finalized and it comes with some strings attached like sustainability and labor requirements. While this could also prove a critical catalyst for the company, it's possible the deal will fall through under a new Trump administration.
A key event lies ahead
No matter what happens with the loan, Rivian knows it needs to offer a more competitively priced vehicle if it wants to boost sales. Its R2 vehicle, scheduled for release in 2026, is designed to do just that. The vehicle, a slightly smaller version of the R1, is expected to retail at around $45,000, putting it on par with a much larger section of the automotive market.
The release of the R2 will be a critical point in Rivian's story. A successful launch could do much to turn its sales slump around. A failure here could be devastating. It's also unclear whether Rivian will be able to turn a profit off of these cars at almost half the price.
With so much up in the air regarding Rivian's future, I would hold off on buying Rivian stock at the moment until there is a clearer picture of the company's path to profitability.
