Investors might have noticed Rivian‘s (NASDAQ: RIVN) 93% surge higher over the past three months and think they’ve already missed the boat. But if Rivian executes its vision, it has plenty of room to run. For perspective, the stock remains down 25% year to date even with the recent surge. Let’s look at three developments that should keep investors optimistic about owning or buying Rivian shares right now.
Major vote of confidence
Rivian recently inked a deal with global automaker Volkswagen to create a joint venture that would share electric vehicle (EV) architecture and software. Volkswagen will invest up to $5 billion in Rivian. The deal breaks down as follows.
Volkswagen will invest $1 billion through a note that will eventually convert to stock and will also make a $1 billion payment when the joint venture is created, likely the fourth quarter of 2024. Volkswagen will then invest another $1 billion in 2025 and 2026, depending on Rivian achieving milestones, and will provide a $1 billion loan in 2026.
This is an important deal for Rivian on multiple fronts. Volkswagen’s investment in the EV maker will provide more funding necessary to finish developing the more affordable R2 electric SUV and its future R3 crossovers. Further, the joint venture will help Rivian cut operating costs even more by leveraging volumes of supplies and components.
Product pipeline
Speaking of the R2 and R3, and eventually the R3X, that product pipeline will be make or break for the company and its ability to reach new segments and more price-sensitive consumers. If those future vehicles are as well received as its flagship R1 vehicles, it will set the EV maker up for long-term success.
The R2 is Rivian’s upcoming midsize SUV that will fit five people, feature two battery sizes, and have a price around $45,000 — much more affordable than the R1 vehicles that start at more than $70,000. The R3 is Rivian’s upcoming midsize crossover, and the R3X will be a performance variant of the R3. Both the R3 and R3X will be priced below the R2, and all three models will be critical for Rivian’s long-term growth and profit potential.
The plan is to bring the R2 into production at its original Illinois factory, and following a quick ramp-up, the R3 and R3X will hit the roads later. The best news for investors might be that all three models are expected to be available internationally after their respective North America launches, adding more addressable markets and potential.
Driving profitability
It’s no secret that nearly all EVs coming out of manufacturing plants are losing money, and Rivian is currently no different. During the first quarter, Rivian’s gross take per vehicle was a $38,784 loss. Now, that figure includes $15,455 of depreciation per unit and $1,693 of stock-based compensation expense, and the results were also negatively impacted by $9,346 per vehicle related to various supplier and other costs incurred before the changes from its cost-of-revenue efficiency initiatives.
For example, Rivian removed over 100 steps from the battery-making process, removed 52 pieces of equipment from the body shop and over 500 parts from its R1 vehicles in an attempt to drastically cut costs.
Now that Rivian has retooled its plant, it expects significant improvement in materials, depreciation, and conversion costs, which should drive the company to a modest gross profit in the fourth quarter. That will be a huge step for Rivian to convince investors it’s driving closer toward eventual profitability.
What it all means
You might have missed the 93% surge in Rivian’s stock over the past three months, but Rivian has long-term potential, especially considering its recent funding from Volkswagen. Its cost savings and plant retooling, future pipeline of products, and joint venture to help funding, are three reasons you can still buy Rivian after its surge and remain optimistic for its future.
Should you invest $1,000 in Rivian Automotive right now?
Before you buy stock in Rivian Automotive, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rivian Automotive wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $774,281!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of July 15, 2024
Daniel Miller 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.
3 Reasons to Buy Rivian Now was originally published by The Motley Fool
