Rivian(NASDAQ: RIVN) lost a lot of money again in the second quarter of 2024. This is something investors should expect to continue, with management anticipating only a "modest" gross profit, at best, by the fourth quarter of the year. Given that data and outlook, is it worth buying an upstart electric vehicle (EV) maker that is still trying to get its business up and running?
Here are some things to consider as you make the buy, sell, or hold call on Rivian.
Reasons to sell Rivian stock
If you are a risk-averse investor, you shouldn't own Rivian. It's that simple. This is a company with novel technology trying to break into the auto sector, an industry dominated by giant international companies. Only part of the problem is related to the fact that it makes EVs. A key piece of its business plan is to make its own tech and software, so it is really going it alone in a David versus multiple Goliaths approach.
Image source: Rivian.
Rivian has achieved notable successes. Its trucks are generally well-liked, it has a partnership with Amazon for delivery trucks, and it just inked a deal with Volkswagen that will likely find Rivian tech in Volkswagen vehicles. But that doesn't change the fact that Rivian is losing money -- and lots of it. In the second quarter, the loss was $1.46 per share. That was up year over year, and the red ink is only going to continue to flow.
The big goal is for the company to produce a "modest" gross profit by the end of 2024. Gross profit is basically just the cost of making the vehicle versus the cash from selling it. A gross profit is a good thing, of course. Still, other costs further down the income statement must be considered, like selling, general, and administrative expenses (running the business) and research and development (a heavy burden for a company developing its own technology).
Together, these two items tallied up to $924 million in the second quarter. A modest gross profit would not even come close to covering these necessary expenses.
To reiterate differently: If you can't stand owning a high-risk upstart company, don't buy Rivian.
Reasons to buy Rivian stock
That said, if you are a bit more aggressive, Rivian increasingly looks like it will be a survivor in the EV space. For starters, despite spending oodles of money to build the business, it still has roughly $7.7 billion worth of cash and short-term investments on its balance sheet. That was bolstered in the quarter by a $1 billion cash infusion from Volkswagen, made in anticipation of an official partnership between the two companies. There's another $4 billion in potential investments from Volkswagen if the partnership deal is consummated as planned.
So, despite the massive investment being made to build the company, there's still massive amounts of cash available to get the job done. And more importantly, additional cash is on the way if Rivian's management team executes well. So far, Rivian has executed quite well, noting that it recently brought out an updated truck and overhauled its manufacturing processes and technology, as planned, to produce more trucks using less money.
If the company's technology gets integrated into Volkswagen cars, as seems likely at this point, Rivian's larger plan of owning all its own technology (so it can sell it to others) will have paid off handsomely, too.
For investors with a high risk tolerance, Rivian's progress toward a sustainable business appears to be moving along quite nicely. If it succeeds, the stock could be a big winner as investors are likely to afford it a higher valuation as it gets closer and closer to achieving profitability.
Reasons to hold Rivian stock
Holding Rivian is a tougher call. If you bought it back when the stock traded hands at over $100 per share, you are likely sitting on some pretty big paper losses. It could take years for you to get back to breakeven. If you have realized capital gains elsewhere in your portfolio, you might want to consider capturing the losses in Rivian stock to offset the capital gains taxes you'll face. There's likely to be plenty of time to buy Rivian stock back after the 30-day window required to avoid the wash sale rules involved in tax loss harvesting.
That portfolio-level consideration aside, Rivian is making notable progress as a company. If you bought it with the idea that it would be a survivor in the EV space, well, your investment thesis appears to remain in place. If you can handle the uncertainty of owning a money-losing upstart, it doesn't seem like giving up now makes a huge amount of sense.
Rivian stock is not for the faint of heart
The truth is that only a small number of investors are likely to want to own Rivian. It is a high-risk investment in an upstart company trying to break into a well-established industry with a number of very large competitors. That really is as hard to do as it sounds, and only the most aggressive types will find that kind of uphill battle appealing.
At the same time, Rivian appears to be holding its own in what is truly a massive effort. You could even argue it is doing quite well, even though it will continue to bleed red ink. It increasingly seems Rivian has what it takes to survive and prosper in the auto space, noting that the Volkswagen deal is a huge vote of confidence in its technology. If you have a strong stomach, it could be worth dipping your toes into the Rivian story.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Volkswagen Ag. The Motley Fool has a disclosure policy.
