Can Rivian Go From Cash-Burn King to Turnaround EV Titan?

Stock Market

Rivian (NASDAQ:RIVN) stock has been on a relatively wacky ride of late. Amid a bolstered production outlook, investors bid up RIVN stock to fresh monthly highs last week.

The company has been making progress in scaling up its manufacturing capabilities and addressing supply chain challenges. This has boosted investor confidence and sparked hopes for a turnaround.

Despite the optimism surrounding Rivian, it’s important to approach the situation with caution. The electric vehicle industry is highly-competitive, with established players and new entrants vying for market share.

Rivian still faces several challenges, including achieving consistent profitability, increasing production volumes, and effectively competing with other major automakers. Read on below to know more about what’s going on with Rivian.

RIVN Rivian  $14.59

Recent News on Rivian

Rivian calmed investor nerves in mid-May by sticking to its 2023 production target and reporting better-than-expected quarterly revenue in sharp contrast to peers Lucid Group, Fisker and Nikola.

The Irvine, California-based startup said it was focusing on rolling out higher-priced, feature-packed models of its R1S sport-utility vehicles and R1T pickup trucks to meet customer demand in the near term, bumping up its average selling price, even as it offers some lower-priced variants.

Rivian recently unveiled its quarterly results, which showed a revenue miss but narrower losses than expected. More significantly, the company maintained its production guidance for the year, which garnered positive reactions from analysts covering RIVN stock.

The Problem with Rivian

Unlike many companies in capital-intensive industries, such as railroads, airlines, oil and gas companies, and automakers, Tesla stands out with its net cash position.

While it took time for Tesla to achieve consistent profitability and positive free cash flow, its ability to generate more cash than it uses ensures that its operations do not deplete its cash reserves.

Rivian faces significant financial challenges as it continues to operate at a substantial loss, burning through cash at a rapid rate.

While the company expects an improvement in cash burn as it scales production, its ability to fund operations solely from existing cash reserves is uncertain, potentially necessitating additional capital raises. Achieving positive free cash flow remains uncertain due to the company’s current lack of profitability.

Rivian acknowledges its intention to exhaust its existing cash reserves, which sets it apart from traditional value stocks. The company’s current business model is unsustainable, and management is aware of this reality.

Unlike FCF-positive value stocks with substantial cash reserves, Rivian’s cash position is temporary and not sufficient to sustain its operations in the long term.

The Bottom Line

Despite Rivian’s underwhelming stock performance the company makes it an intriguing investment opportunity. Unlike traditional automakers, Rivian can fully focus on its electric vehicle lineup, providing a straightforward investment thesis.

Investors expecting an ideal entry point for Rivian may need to wait for the company to align expectations with actual performance. However, for those comfortable with higher risk, the current market conditions could present a buying opportunity.

While 2022 was a challenging year for Rivian, the worst may be behind them, and it’s not the time to lose faith. In fact, it could be a suitable moment to start getting optimistic about the company’s stock.

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 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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