The electric vehicle (EV) industry is barreling forward like a runaway train, with a projected 27% global market growth in 2024, following a robust 29% surge in 2023 to hit 13.7 million units. EVs are outpacing the traditional automotive market, snatching market share from their gasoline-powered counterparts. China, a key player in this realm, is slated to reach a 40% EV penetration rate this year. Not long ago, the idea of an EV market was a mere whisper in the wind globally.
Several contenders are vying for supremacy in the cutthroat EV arena, from heavyweight champions like Tesla and BYD to longstanding players like Volkswagen and Ford. However, a new challenger emerged on the scene in 2021, shaking up the status quo: Rivian Automotive (NASDAQ: RIVN). This EV maverick swiftly climbed the ranks, becoming one of the leading purveyors of electric vehicles in the United States. Recently, Rivian dropped a bombshell with its product line expansion announcement.
Shifting Gears: Affordable SUVs on the Horizon
Rivian kickstarted its journey with two flagship offerings. First up was the premium EV pickup truck, R1T, priced at a premium nearing $100,000. While this product caters to a niche clientele due to its lofty price tag, initial sales figures demonstrate a positive market reception as Rivian carved a unique niche distinct from Tesla, a market leader focusing on sedans and crossovers. Alongside the R1T, Rivian leapt into the realm of electric commercial vans, securing a monumental 100,000-unit pact with Amazon, an endeavor spanning multiple years. Though initially tied exclusively to Amazon, Rivian now flexes its commercial van muscles with a wider customer base.
Fueling its expansion, Rivian is diversifying its product portfolio. The R1S SUV, another premium gem boasting nearly 400 miles of range and robust off-road capabilities akin to a jeep, emerged as the top-selling EV priced over $70,000 last quarter – highlighting the brand’s resonance with affluent consumers. Looking ahead, Rivian aims to democratize EV ownership with more budget-friendly models. Earlier this month, the company unwrapped the R2 SUV, slated for a $45,000 price tag and set to roll off the assembly line in 2026. Following this, Rivian plans to introduce an even more economical R3 lineup, aiming to galvanize substantial unit sales. While the high-end R1T and R1S models will remain in the mix, Rivian’s recent announcements underscore ambitions to conquer the mass-market EV domain in the current decade.
Metering Success: The Critical Importance of Deliveries
Management hails the triumphs of the R1T and R1S, yet Rivian grapples with soaring unprofitability. Over the past year, the company hemorrhaged nearly $6 billion in free cash flow, a consequence of scaling up production and fortifying the requisite fixed cost infrastructure for car manufacturing. To stave off financial oblivion, Rivian must pivot towards exponential delivery growth to pivot from cash hemorrhaging to positive cash flow.
Deliveries plateaued in recent quarters, slipping from 15,500 in the third quarter of 2023 to 14,000 in Q4. This downturn suggests Rivian may have hit a saturation point for its high-end products, given their premium pricing and limited market presence within select U.S. regions. Only a finite pool of consumers are willing to splurge six figures on a vehicle from an upstart brand lacking an extensive legacy.
The impending production commencement of the R2, two years down the road, raises red flags, presuming Rivian sidesteps the slew of production hiccups haunting its operations. This precarious predicament places Rivian at the precipice of burning through billions in cash over the next couple of years before ushering its mass-market wares into production. Sporting a tad over $9 billion in cash reserves, it’s not implausible for Rivian to deplete this war chest within the foreseeable future.
I hold firm conviction that Rivian can bolster its delivery volumes once the R2 hits the streets. Nonetheless, we’re lightyears away from this milestone. Investors must vigilantly monitor Rivian’s delivery growth sans significant price slashes; otherwise, the company will remain ensnared in a vortex of financial hemorrhaging.
See Rivian’s Free Cash Flow Chart
Free Cash Flow Chart data by YCharts
Stock Savvy: Is Rivian a Shrewd Buy?
Amidst fervent cash incineration and a dearth of impending financial upturn, Rivian’s stock has plummeted post its 2021 IPO. Presently, it nosedives to a $12.24 share price, plunging a profound 93% from historic peaks to a market cap of $12 billion.
This might seem a bargain if Rivian successfully ramps up production with its novel models. Currently raking in $4.4 billion in sales, this figure could snowball, tripling or more over the coming years in tandem with the burgeoning EV market. Yet, investors must bear in mind that Rivian hinges on a perilous financial precipice, battling delivery growth stagnation over the recent quarters. The road ahead is fraught with hurdles; Rivian must execute flawlessly in the ensuing years to emerge unscathed on the other end.
For the optimists eyeing Rivian stock, prudence dictates maintaining a modest position. Placing all eggs in Rivian’s basket risks portfolio devastation should the company flounder. Nevertheless, should Rivian defy the odds and thrive, a modest position today could burgeon swiftly into a substantial stake.
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