Rivian: Buy, Sell, or Hold?

As an investor, you might be wondering what to do with Rivian Automotive (RIVN) stock. The electric vehicle (EV) maker has had a roller-coaster ride this year, with its stock down over 50% year to date. So, should you buy, sell, or hold Rivian? Let's explore each case.



The Buy Case

If you're considering buying Rivian, you should believe in the company's ability to reduce its vehicle production costs. Rivian has made significant changes to its next-generation models and retooled its factory to increase productivity. These changes include a redesigned battery, heat pumps for improved efficiency, and a switch to a zonal system that reduces electronic control units (ECUs) by 60% and removes 1.6 miles of wiring. Additionally, Rivian is set to introduce a more mainstream SUV, the R2, with a starting price of around $45,000, which should open up a much broader market for the company.

Rivian's partnerships with Amazon and Volkswagen are also crucial for its financial stability and growth. Amazon, Rivian's largest shareholder, has ordered 100,000 electric delivery vans, providing Rivian with a steady stream of revenue and a large-scale customer. Volkswagen's $5 billion investment and 50/50 joint venture offer cash for manufacturing expansion and a solid runway to profitability.



The Sell Case

The sell case for Rivian is centered around its current unprofitability and gross-margin-negative status. In the second quarter of 2024, Rivian sold its vehicles for a whopping $32,705 less than it cost to make them. Even excluding expenses not part of its long-term cost structure, it still lost $28,427 per vehicle. While Rivian had been expecting to be slightly gross-margin-positive in Q4, that's a big gap to close. Additionally, the revelation of a component shortage that will reduce production could derail its gross margin goal. Rivian must prove it can produce its R2 with positive gross margins and then become profitable, which is another significant hurdle.

At the same time, overall EV industry growth has significantly slowed this year, with consumers turning more attention to hybrids.

The Hold Case

Given its early-stage nature and current gross-margin profile, Rivian is a speculative investment. It has strong backers in Amazon and Volkswagen and can be a strong EV brand, but it still has a lot of work to do to become a company with an enduring business. As such, it may be best just to hold a small position as a more speculative bet.



The Verdict

I'd carve out a small, speculative position and just hold on to the stock for several years to see if Rivian can reach its potential. I think it has solid EV offerings and I like its partnerships with Amazon and Volkswagen, but at this stage, there are a lot of different possible outcomes. Rivian's success will depend on its ability to execute on its plans, improve gross margins, and achieve profitability. Keep an eye on the company's progress and adjust your position accordingly.