If you'd purchased $1,000 worth of Rivian (RIVN -0.46%) stock when it hit the market in 2021, you would have just $99 today -- a painful loss of 90%. What's worse, the company shows no signs of changing its downward trajectory, with a decline of 57% so far this year. But as Rivian gets cheaper, it will draw the attention of value-hungry investors eager to bet on a rebound.
Is it finally time to pull the trigger? Let's dig deeper to find out.
The EV industry is changing -- in a bad way
When Rivian stock became available in late 2021, the electric vehicle (EV) market was flush with optimism. Governments around the world outlined ambitious targets for the industry and supported it via subsidies, while leaders like Tesla posted much better profit margins than legacy, gas-powered alternatives. Rivian quickly established a niche by focusing on trucks and SUVs, while its rivals mainly built cars.
Unfortunately, none of this would last. EV sales growth is decelerating while competition rises, leading to lower pricing power and margins. While larger players can weather the storm, it has become an existential threat for smaller companies like Rivian, which lack the economies of scale to win a price war or the capitalization to absorb too much cash burn.
The effects of the worsening EV market dynamics are clear in Rivian's first-quarter earnings results. While revenue jumped over 82% to $1.2 billion, margins remain abysmal. The company posted an operating loss of $1.48 billion and a gross loss of $527 million, which means it still costs Rivian more to manufacture and deliver its vehicles than it can recoup from selling them.
Management has a plan
Rivian's management doesn't plan to sit back and watch the company fail. They believe Rivian can achieve a modest gross profit by the fourth quarter of this year through increased production volume and manufacturing efficiencies. If this plays out as projected, it would be a massive signal to the market that Rivian's business model is viable in the near term. And over the longer term, the company plans to release new, cheaper models like the R2 to hopefully reignite demand.
Scheduled for the first half of 2026, Rivian's R2 is a smaller version of its R1S full-sized SUV. With an expected price point of just $45,000, it will be much cheaper than the larger vehicle's almost $77,000 price tag.
Image source: Getty Images.
Rivian believes it can eventually scale R2 production to 155,000 annually at its Illinois plant. If there is sufficient demand for the vehicles, this project could help Rivian transition from a cash-burning start-up into a sustainable medium-sized automaker.
Rivian's R2 will face competition from other low-priced electric SUVs, such as General Motors' Chevy Equinox EV, which has a starting MSRP of $41,900. But as a trendy pure-play EV maker that built its brand with higher-end vehicles, Rivian may be able to get away with premium pricing.
Is Rivian stock a buy?
Rivian has an undeniably challenging road ahead. But there seems to be light at the end of the tunnel if management can achieve gross profitability this year and successfully scale up the R2 program in 2026. With that said, it still looks too early to buy shares.
Rivian only has just under $8 billion in cash and short-term investments on its balance sheet, while operations burn through around $1.5 billion per quarter ($6 billion annualized). The company may turn to shareholder dilution to raise capital, which can reduce the fundamental value of existing shares. Investors may want to wait until Rivian's liquidity position improves before taking a position in the stock.
