Owning Rivian (RIVN 6.97%) stock is not for the faint of heart, even after a recent $5 billion cash infusion from Volkswagen (VWAGY -0.79%). But if you are a more aggressive investor, that cash lifeline could be exactly what Rivian needs to create a profitable business.
The future for this stock looks far brighter now than it did before the Volkswagen agreement -- and it still trades for well below $200 a share, even after a big stock rally. Here's why this electric vehicle (EV) stock might be a great buy right now if you have $200 available to invest.
What has Rivian accomplished?
It is important to give Rivian the credit it deserves, despite the fact that the business continues to bleed red ink. Losses in startups aren't shocking at all, given the magnitude of trying to build an electric carmaker from the ground up. That said, Rivian makes highly desirable EV trucks. They have won multiple industry awards, which suggests that Rivian's products are good.
Image source: Rivian.
More important than the awards, Rivian has started to produce at scale. In 2023, it made roughly 57,000 vehicles. That's a large number and proves that the company can execute on a plan.
In 2024, the plan shifted gears from ramping up production to turning a profit on each vehicle it builds. The new direction included cutting costs, upgrading its manufacturing processes, and switching to new suppliers.
The effort to upgrade the company's production processes was a near-term headwind and helped lead to a loss of nearly $39,000 on every vehicle it sold in the first quarter of 2024. That's not great, but it was a necessary step as the company works toward turning a gross profit on each vehicle by the end of 2024. That's not the same as being profitable at the company level, but it is the next step toward that goal.
Put simply, management is doing a decent job of achieving the goals it is setting out for itself, and that is moving the company slowly toward being a sustainably profitable venture.
Solving a big problem with Volkswagen's money
The race for Rivian has long been between time and money. To put a figure on that, the cash and marketable securities listed on the company's balance sheet fell roughly $1.5 billion in the first quarter to roughly $7.8 billion. Although you have to take into account the capital spending in the quarter on the plant upgrade, cash was getting increasingly tight.
That's where Volkswagen comes in, as it just offered Rivian a lifeline. The complete deal is for up to $5 billion in cash. The first part of that comes in the form of a convertible note. The rest is related to a proposed joint venture between the two companies.
The first cash from the joint venture agreement is going to be a $1 billion purchase of Rivian stock in 2025. Another $1 billion purchase is set to take place in 2026. The remaining $2 billion will take the form of an investment in the joint venture and another loan, which will be made available in 2026.
Rivian will still be burning through cash as it builds out its business, but now it has cash coming in to replace what it spends, as well as a large, established partner in the auto sector. Assuming things go as planned, as there are still issues to iron out and regulatory approvals to get, working with Volkswagen could, at some point, dramatically improve Rivian's financial position and maybe even its ability to distribute its products.
The future has brightened for Rivian
Rivian shares rallied dramatically on news of the Volkswagen agreement, which shouldn't be a big surprise. It is still only appropriate for aggressive investors, but if that's the camp you fall into, well, Rivian has secured an important financial lifeline and an important partner. That materially increases the likelihood that Rivian succeeds in its goal of becoming a profitable EV maker.
If you don't want to buy the stock on this news, that's understandable. The two companies still need to work out the final details. But keep an eye on the company. A modest gross profit in the fourth quarter of the year is the next big milestone, and that could be what ends up convincing you to climb on board.
