Rivian has entered the automotive space with an attractive electric truck offering. Is that enough to make shareholders millionaires?
Rivian Automotive (RIVN -6.95%) is at a critical juncture. One path leads to profitability, growth, and long-term success. Another is obsolescence. Well, that might be a little too dramatic, but Rivian’s big goal for 2024 is to increase its gross margin. It’s not the same as generating positive revenue, but it’s an important step in the process. If you can’t take the first step, your long-term appeal will be limited. However, if we can achieve that goal, the future will be very bright.
What does Rivian do?
At a high level, Rivian isn’t doing anything interesting. Just make the track. In the consumer sector, that means pickup trucks. In the business world, that means delivery vans, at least for now. The important nuance here is that we are building electric trucks. While not completely unique, other automakers also make electric trucks, so Rivian has an award-winning product that’s very popular with consumers. Oh, and in fact, the company’s factories have achieved substantial production levels and are expected to produce around 57,000 trucks in 2024.
Image source: Getty Images.
The problem is that Rivian is basically still in boot mode. As a result, they are incurring large losses. That won’t change in 2024. In fact, the company spent a lot of money in the first half of this year to upgrade its production facilities and enhance its truck offerings. The factory upgrade has progressed smoothly and management is implementing it as planned. But the real test will be whether Rivian can achieve decent gross margins in the fourth quarter of this year, as management is targeting. It’s not good for that goal to be delayed, but it wouldn’t be the worst thing in the world if it took a few more quarters. Rivian has $7.8 billion in cash and short-term investments on its balance sheet, supporting its shabby operations.
Given the continued deficit, that money won’t last forever. But Rivian recently signed a deal with Volkswagen worth about $5 billion, so more cash is coming in, which should give Rivian the room it needs to continue developing electric vehicles.
Rivian’s story has an interesting little twist.
The deal with Volkswagen is more important than you might think. Yes, it’s about finding additional funds as Rivian spends to build its business. But the key to the deal is that Rivian is giving Volkswagen access to proprietary technology. From its inception, Rivian wanted to own its technology so it could sell it to other automakers. That’s exactly what’s happening at Volkswagen.
This not only proves the business concept, but also means Rivian doesn’t just sell its own branded trucks. The deal with Volkswagen suggests that if it can generate gross margins on trucks, Rivian has a realistic path to bottom line profit as it expands its footprint in the broader automotive sector. There is.
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Assuming Rivian can do that, investors will likely flock to the stock. Tesla’s stock price has fallen significantly from its highs, but it has come a long way since the company was still in start-up mode. This is a logical point of comparison here, and suggests that Rivian may indeed become a billionaire manufacturer’s stock.
Rivian comes with high risks
That being said, Rivian still has a lot to prove and needs to perform at a high level. Otherwise, like many other electric car manufacturers, it could come under fire. Therefore, investors should not participate here without fully understanding the risks. But so far, Rivian is doing well, and the business appears to be on a solid upward trajectory. So the bottom line is that Rivian could make you a billionaire, but only if you have the stomach for a more aggressive investment approach.
Reuben Greg Brewer has no position in any stocks mentioned. The Motley Fool has a position in and recommends Tesla and Volkswagen. The Motley Fool has a disclosure policy.
