The rationale behind investing in Rivian's stock prior to November 30:
Rivian Automotive (RIVN 11.15%) has been quite erratic in the stock market since its initial public offering in 2021. Volatility, however, can sometimes present great buying chances. Following a recent dip, Rivian's stock now appears too undervalued to overlook. And there's a significant reason to purchase before the end of the month. Let's delve in, and I'll clarify.
Rivian is close to achieving this significant milestone, according to the company
The electric vehicle (EV) manufacturer has achieved significant success since introducing its first two luxury models: the R1T and R1S. Sales have surged from merely $1 million in September 2021 to over $5 billion currently.
This sales trajectory may continue with the launch of three new mass-market vehicles: the R2, R3, and R3X. Unlike Rivian's high-priced existing models, these are expected to debut below $50,000. This could propel the company into another phase of substantial growth, similar to what the Model 3 and Model Y did for Tesla.
Despite this, compared to other EV manufacturers like Tesla and Lucid Group, Rivian trades at a considerable discount as per several valuation metrics. For instance, it trades at only 2.2 times sales, while Lucid and Tesla trade at 6.5 and 12.3 times sales, respectively. If Rivian were to trade in line with these peers, it could potentially yield a 200% to 600% return.
Currently, there's a near-term catalyst that could bridge the gap swiftly. One of the reasons the market remains doubtful is that the company consistently posts sizeable losses per vehicle sold. Despite impressive sales growth in recent years, net losses continue to mount.
The same is true for other smaller EV manufacturers like Lucid. However, established competitors like Tesla have reported positive gross margins for years. In an industry plagued by bankruptcies, the market is eager to see Rivian achieve gross profitability before assigning it a higher valuation, especially since its sales growth has slowed down significantly in the past year.
Fortunately, you wouldn't know it from Rivian's rock-bottom valuation, but the company is on the brink of achieving gross profitability. If management is to be believed, this should occur in the current quarter. Should this happen, there's little time before this possibility becomes a public reality.
Last quarter, Rivian lost approximately $39,000 per vehicle. This was a significant increase from the previous quarter's loss of $32,700. Yet this month, management reiterated that the company was on track to achieve positive gross margins by the next quarter. This would be a remarkable achievement, and the market is reasonably skeptical. However, there's no question that Rivian's share price will likely surge if this milestone is reached.
Don't purchase this stock just for near-term outcomes
It's crucial to recognize that Rivian is not a stock for short-term investors. If the company fails to achieve positive gross margins in the next quarter, the market could lose even more confidence in it, especially given that overall sentiment for EV stocks is currently lower than it was during boom years like 2021.
To invest in Rivian today, you must be comfortable with either scenario. If the company achieves positive gross margins, this would signify a strong endorsement of its management and its long-term survival, enabling it to launch its mass-market vehicles in 2026 and 2027. On the other hand, if management's projections are incorrect and the stock plummets, you would need to be excited about the prospect of acquiring additional shares at a reduced price.
Customer loyalty surveys by media outlets like Consumer Reports indicate that Rivian is capable of manufacturing vehicles that consumers adore. Additionally, launching EVs below $50,000 proved to be a significant growth lever for Tesla. I anticipate a similar outcome for Rivian if it can overcome financial hurdles until these models become available.
Achieving positive gross margins would significantly enhance the odds of this occurrence, but its partnerships with well-funded investors such as Amazon and Volkswagen provide some financial assurance.
In either case, growth-focused investors should carefully examine Rivian before the next quarter's results are disclosed. Be prepared to increase your position if expectations fail to meet reality. Otherwise, this stock might not be suitable for you.
Given the current situation, investing in Rivian could potentially yield significant returns if the company manages to achieve gross profitability as promised. If successful, the stock price is expected to surge, making it an attractive opportunity for finance-savvy individuals who are willing to invest in the long term. Meanwhile, it's crucial to note that Rivian's success hinges on its ability to reduce loss per vehicle and improve its financials, indicating the importance of sound money management in this context.
