Considering a Bet on Rivian Stock? Slow Your Roll.

Being labeled as a “best idea” for 2024 by Baird, Rivian Automotive (NASDAQ:RIVN) is certainly an EV stock that has caught the attention of many investors. Of course, RIVN stock has been on a wild ride in recent years, hitting a high of more than $170 per share in 2021 before setting down the sub-$25 per share range for the better part of the past year.

At roughly $15 per share at the time of writing, investors now have the ability to invest in this stock at a 90% discount from its peak. And while some analysts are growing bullish on the name (and personally, I think their trucks and SUVs look cool), this is a company with operational issues.

Shares have continued to trade sideways or down on most company updates. In fact, RIVN stock recently plunged 9.2% after the company revealed its Q4 and full year 2023 production and delivery results. The company’s deliveries exceeded projections, but analysts including those at Deutsche Bank (NYSE:DB) downgraded this stock due to looming concerns of margin compression and lowervolume expectations moving forward.

So, a mixed picture for Rivian is what we’re left with right now. Here’s why I think investors should consider right now.

Let’s Look At the Numbers

If we focus primarily on the company’s backward-looking results, Rivian did relatively well in 2023. In fact, the company produced and delivered excellently, producing over 54,000 units and delivered 50,000 of its vehicles to a growing customer base. These numbers translate into a remarkable 147% and 135% increase, respectively, from 2022 numbers. Additionally, the substantial progress in getting vehicles out the door shows Rivian can potentially be a mass-producer of EVs over time.

Although production and deliveries are full of good news, issues around the company’s financial standing still persist. In Q3 2023, the company reported a $1.3 billion loss, which equates to also a loss of $33,000 per unit sold. Although we have seen improvement in Q4 2022, substantial gains should always come with significant financial capacity, which Rivian doesn’t have.

What’s Going Wrong

In 2023, Rivian faced many hurdles in terms of its balance sheet and accumulated losses. While still exhitbing progress and outperforming production expectations, a deliveries drop of 10% in its Q3 report sparked concerns on the company’s order backlog and its ability to fulfill demand. 

The company aims to end 2024 with excellent gross margins, but it may take some time for Rivian to achieve this feat. Rivian’s weakness lies in its increasing expenses, which had already reached $2.77 billion. Any time expenses surpass operating revenue, which they do in the case of Rivian, fundamental investors can get concerned.

Additionally, Rivian is heavily dependent on its $19.9 billion cash position which was a result of its IPO. This cash hoard has subsequently diminished by 60%, and with only $7.9 billion left, if the company can’t produce vehicles at scale (and profitably), there’s some concern about its long-term prospects.

All that said, investors now await Q4 and full year results on February 21 for more data insights on Rivian’s 2024 trajectory. 

Bearish Sentiment Currently Overwhelming the Bulls

Market fluctuations and internal challenges have been a big bump to Rivian’s road to success. Since its IPO in 2022, there have been many of headwinds. These include supply-chain issues, input price increases, and product recalls that had complicated the company’s delivery guidance.

The path to profitability for Rivian may be a longer road than many think. In its Q3 earnings, the company already lowered their price targets, a move that raised a lot of skepticism from analysts. However, Goldman Sachs (NYSE:GS) has gone against the grain, instead raising their price target. This has raised plenty of brows, especially that Rivian’s financial standing is crashing.

Despite these hurdles, Rivian’s management team is still optimistic that they will end 2024 on a positive note. While the company aims for positive gross margins, Rivian is also planning for larger volumes in terms of productions. This will only mean additional capital costs, requiring additional capital.

For EV Investors, RIVN Stock Is a Tricky Stock to Assess

Rivian has become a standout in the EV sector due to its competitive EV models, but it’s still a company that battles operational and production-related issues. Until the company can show its ability to scale profitably, and provide investors with a return of capital, I think EV investors will continue to hunker down in the incumbents.

While I do think RIVN stock holds value as a potentially speculative pick, until there’s a pathway to profitability within a reasonable time frame, this isn’t a stock I’ll be considering. I have a feeling many in the market may be voting the same way with their capital right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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