Where Will Rivian Be in 3 Years?

Down by 92% since its initial public offering (IPO) in November 2021, Rivian Automotive (NASDAQ: RIVN) highlights the risks of buying a stock too early. The electric vehicle (EV) maker failed to live up to its hype as relentless cash burn and competition eroded its business.

Can management turn the situation around? Let's explore what the next three years could have in store.

A grim financial situation -- with hope

When it hit public markets in 2021, Rivian was the second most valuable U.S. automaker in the world, behind Tesla. With a market cap of over $100 billion, it dwarfed rivals like Ford Motor Company and General Motors despite reporting barely any revenue. Clearly, the hype had overcome fundamentals. But even though Rivian's shares have fallen back to Earth (current market cap: $10.5 billion), the stock still isn't necessarily a good value.

Third-quarter earnings were grim. Revenue fell 35% year over year to $874 million, which is a bad sign for a growth-oriented company that will need to scale its business model into profitability. Furthermore, the company generated a gross loss of $392 million, which means it costs more to make and deliver its cars than it can recoup from selling them.

CEO RJ Scaringe aims to turn the situation around relatively quickly. He expects Rivian to generate a gross profit in Q4 through higher average selling prices, better manufacturing efficiency, and lower materials costs. If successful, this could mark an inflection point for the company, opening a path to net income through scale and cost-cutting.

While Rivian's 2024 delivery outlook of 50,500 to 52,000 vehicles (compared to 50,122 in 2023) remains unimpressive, new cheaper models like the mid-sized R2 and R3 SUVs (starting at $45,000) could boost growth by making the company's lineup more affordable when they are expected to launch in the first half of 2026.

How will Trump's presidency affect Rivian?

Unlike Tesla, which is up by around 40% since Trump's election win on Nov. 5, Rivian's shares initially reacted poorly to the news, dropping by around 7% before recovering a week later. There are several reasons investors might be spooked about the new administration.

During the campaign trail, Trump expressed skepticism about what he called "electric vehicle mandates," which are policies designed to force a transition to EVs by limiting tailpipe pollution and tightening fuel economy standards. The regulations generally make gas-powered cars more expensive for consumers and costlier for automakers to produce, accelerating the adoption of greener technologies.

Image sources: Getty Images.

The $7,500 tax credit for buyers of EVs could also be on the chopping block. And if it is removed, it could make Rivian cars more expensive compared to their gas-powered alternatives.

All this being said, less government intervention in the EV industry could also have some benefits. While the changes will likely hurt in the near term, a freer market could give Rivian more space to grow by removing competition from traditional automakers that are essentially being forced to transition to EVs at a pace that might exceed consumer demand. This excess competition is likely suffocating Rivian's growth potential.

How will shares perform over the next three years?

The next three years will make or break Rivian. The company must transition into gross profitability -- and eventually net income -- by scaling up its business model. Success will probably depend on the reception of its new lower-priced vehicles expected to launch in 2026.

But while Rivian has a pretty clear game plan to start creating shareholder value, I still think it is too early to buy the stock. As it stands, Rivian is a "growth" stock that isn't growing. And investors should expect continued downside until this situation changes.

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 $833,545!*

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 November 25, 2024

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.