Investors Should Avoid Rivian as Cash Burn Continues Indefinitely
The Tesla competitor is all-in on the electric vehicle future but I'm staying on the sidelines for now.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
This is the third article in TheStreet Pro's coverage of Rivian's 2024 earnings. The first two can be found here and here.
Tesla Trades on Hope Rivian Investors Need Realism
As our managing editor Jason Meshnick found the Rivian R1T sublime in his week of Colorado mountain driving, I’m reminded that the Peter Lynch investing style — where you want to own the stocks of the products you love — fails with Rivian RIVN.
As with most EVs, the driving experience is extraordinary, but profits for investors and carmakers have been challenging to come by, save for Tesla TSLA. Even Tesla, though, is trading on something other than metrics for an automaker with hope and hype in the shares for robotaxi dominance and autonomous robots. Much like Rivian has forecast for 2025 for vehicle sales to potentially decline, Tesla’s vehicle sales declined in 2024 from the prior year while revenue was flat — not much of a growth story for now.
A Leap of Faith?
Investing in Rivian takes a leap of faith: when they build it, buyers will come. Rivian expects flat vehicle sales of around 50,000 this year and only 8,000 in the first quarter, down significantly from Q1 of 2024. Rivian’s plant in Illinois has a capacity for 215,000 vehicles, so it will be operating well under capacity. Yet, in anticipation of strong demand for the R2 and R3, it is building a new Georgia plant with a capacity for 400,000 vehicles.
While Rivian is all-in on the potential for its future, investor caution is warranted. The R2, priced under $50,000, will enter the most competitive SUV category. A slow ramp or any delays will continue to drain cash from the balance sheet, likely leading to additional dilutive capital raises. The policy uncertainty adds to risks skewed to the downside, including diminished EV incentives and potentially reneging on the $6.6 billion Department of Energy (DOE) loan to build the Georgia factory.
Rivian may consider scrapping plans for the Georgia plant by sharing space in Volkswagen’s South Carolina plant, as suggested by Bernstein. Avoiding the new plant expense would immediately relieve pressure for requiring explosive volume production, the DOE loan, and significant balance sheet-stretching capital outlays. Unlike their current trajectory, Wall Street can likely get behind this more conservative path.
At its core, the auto business needs scale and capacity utilization to improve margins and attain positive cash flow. If Rivian proceeds with the plant in Georgia, it risks running chronically under-utilized factories. The run-rate for domestic EV sales has well undershot expectations, and currently, policy is unlikely to accelerate EV sales meaningfully.
One potential opportunity not to be completely overlooked: Morgan Stanley analysts consider valuing RIVN on its ability to extract value as a technology provider for the software-defined vehicle architecture to other OEMs. They believe Rivian has an opportunity to be a leader in the AI-based autonomy race. However, this is still to be determined based on upcoming technological milestones, and Morgan Stanley sees the risk/reward balanced with a $13 target.
Stay on the Sidelines for Now
While I respect Rivian’s vision, the enjoyment of driving its vehicles and its all-in bet on an EV future, it may want to recognize the current demand and incentive environment and scale back its ambitious plans in order to slow cash drain and remove capital uncertainty.
Closer to an asset-light future will take significant risk out of the investment profile. With the cash burn continuing indefinitely and EV demand in flux, the sidelines seems like the best position for investors.
At the time of publication, Ginesin had no positions in any securities mentioned.
