Is Rivian stock currently a buy?

The S&P500 And Nasdaq-Composite have held up well so far in 2024, but one stock that hasn’t been such a good investment is Rivian Automobiles (RIVN 2.87%)The electric car maker’s shares are set to fall nearly 45% in 2024. At just $13 per share, Rivian stock is dangerously close to its all-time low.

Could this be an opportunity to buy on dips, or should investors avoid a potential falling knife?

The good news from Rivian

Already in June, Rivian announced the formation of a joint venture with Volkswagen. According to the agreement, Volkswagen plans to invest up to $5 billion in Rivian. Working with a much larger automaker can help Rivian in several ways. First, it opens up new geographic markets for Rivian. In addition, Rivian can leverage Volkswagen’s supplier network to find more efficient ways to develop its expensive electric vehicles.

While the EV market is dominated by Tesla and a number of Chinese automakers, Rivian has a unique advantage. Unlike Tesla and many of its competitors, Rivian car models are more similar to a Jeep or Range Rover. Differentiating itself more as an SUV provider could be a smart move in the long run, as it would set Rivian apart from larger competitors and could make it more attractive to certain customer groups.

While this all looks encouraging for Rivian, there are also some low points that investors should be aware of.

Image source: Getty Images.

The not so good news at Rivian

Developing electric vehicles is extremely expensive, requiring large investments in capital expenditure (capex), engineering talent, and marketing. As the table below shows, Rivian has yet to figure out how to build its vehicles profitably.

Image source: Rivian Investor Relations.

Looking at the chart above, it’s easy to see some big problems. First, Rivian’s production output is fluctuating. While shipments have increased nominally, the company’s production capacity is fluctuating. This ratio is suboptimal and could pose a problem when it comes to meeting consumer supply and demand.

The bigger problem, however, is the company’s lack of profitability. In the quarter ended June 30, Rivian’s gross profit per vehicle was Negative $32,705. Worse still, Rivian’s negative unit costs haven’t improved at all over the past year.

So while the company has attracted some public attention and proven that it can generate some demand for its electric vehicles, Rivian has so far proven that it can master the production of cars in a profitable way.

Is Rivian stock a good buy right now?

It’s hard to make a case for investing in Rivian over a much larger, more sophisticated, and more profitable competitor like Tesla. Although Rivian’s valuation has collapsed, I personally think the sell-off is justified.

In my view, investing in Rivian is more based on a long-term bullish outlook for the electric vehicle industry in general. I think investors looking to invest in the electric vehicle industry should look for other options.

My fear with Rivian is that the stock could experience an uptrend, but for the wrong reasons. This would appear As with any good investment, the reasons that drive a stock price higher may not necessarily be based on solid fundamentals.

To make a compelling case for Rivian, I think the company needs to do more to prove that its business is sustainable. Until then, I would look elsewhere and monitor Rivian’s progress.