Unlike the rampant excitement for electric vehicle (EV) stocks a couple of years ago, investors have pumped the brakes considerably over the past few months. Shares of electric truck manufacturer Rivian Automotive(NASDAQ: RIVN), for example, have skidded through the first half of 2024, plummeting about 40%.
But smart investors know that when stocks decline steeply, it could be an overreaction and, in fact, represent a great buying opportunity. With that in mind, let's look at some of the important things to know before powering your portfolio with Rivian stock.
1. The company's financial health has improved
Although Rivian's vehicles are now visible on America's highways, the company is burning through considerable amounts of cash. In 2022 and 2023, it reported negative cash from operations of $5.1 billion and $4.9 billion, respectively.
Its cash position is dwindling significantly. Whereas it had $11.2 billion in cash and cash equivalents at the end of the 2023 first quarter, it recently reported having $6 billion in cash and cash equivalents at the end of the 2024 first quarter.
Volkswagen recently announced that it's making a sizable investment in Rivian, providing it with up to $5 billion in cash as the two form a 50/50 joint venture that gives the EV maker some breathing room.
2. Don't expect vehicle production to accelerate anytime soon
Many of those who hitch a ride with Rivian choose to do so because they recognize the stock as a great growth opportunity. Although it's still early in the company's development and these forward-looking investors could be proved right, it's unlikely that the company will see considerable growth in 2024.
In 2023, Rivian produced 57,232 vehicles; it ended the year on a strong note, reporting production of 17,541 vehicles in the fourth quarter, which represents an annualized rate of just over 70,000. Since it is updating its factory and slowing operations, the company doesn't expect to maintain the momentum it had in the fourth quarter. During a recent investor presentation, management reiterated its 2024 vehicle production forecast of 57,000.
3. Rivian could be on the road to profitability
Revenue grew from $55 million in 2021 to $4.4 billion in 2023, for explosive top-line growth over the past couple of years. What it hasn't seen, however, is comparable improvements at the bottom of the income statement. After reporting a net loss of $6.8 billion in 2022, Rivian incurred a net loss of $5.4 billion in 2023.
Management believes that the company will soon turn a corner on profitability. In addition to projecting that it will report a gross profit in the fourth quarter of 2024, management also believes it sees a path toward breakeven in 2027 on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA).
4. Keep an eye on the Peach State
With Rivian receiving a fresh injection of cash from Volkswagen, investors will want to see how the company proceeds with the factory that it has been developing in Georgia. In March, the company announced that it was pivoting with its plan for R2 production from the new plant in Georgia to its current factory in Illinois, a move that management projects will save about $2.5 billion.
The company doesn't seem to be completely forsaking the development of the Georgia factory, so investors should watch for updates on its progress. If it goes forward, the factory has a planned annual production capacity of as much as 400,000 vehicles.
5. Shares are hanging on the discount rack
It's hard to use traditional valuations with Rivian stock since the company generates neither profits nor operational cash flow, but that doesn't mean it's impossible to evaluate the stock's price tag.
It currently trades at about 2.8 times trailing sales, a discount to EV peers Lucid Group(NASDAQ: LCID) and VinFastAuto(NASDAQ: VFS). Like Rivian, Lucid and VinFast are upstart EV companies that have failed to generate gross profits, yet Lucid and VinFast trade at price-to-sales ratios of 9.5 and 7.6, respectively.
Is it smart to park Rivian stock in your portfolio now?
With stocks pulling back sharply since the start of the year, it's no wonder that investor interest in Rivian stock has raced higher -- especially with the company's financial position a lot stronger following the deal with Volkswagen.
Nonetheless, the company should remain a consideration only for those comfortable with a higher-risk investment. On the other hand, for those interested in Rivian but seeking a more conservative approach, an EV exchange-traded fund could be a better option.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
