Is Rivian Stock a Buy Before Feb. 20?

Shares of Rivian Automotive (NASDAQ: RIVN) have struggled in recent years, losing around 90% of their value since hitting the public market in 2022. While the electric vehicle (EV) maker's products have been well-received by the automotive press (winning their fair share of quality and safety awards), the company continues to struggle with sluggish growth and catastrophic cash burn.

Despite these challenges, Rivian's management remains optimistic about its ability to turn the situation around. Let's discuss three key factors investors should watch for in the company's upcoming fourth-quarter earnings report.

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1. Gross profitability

Rivian CEO Ryan Scaringe has raised hopes for Rivian's fourth-quarter earnings, expected to drop on Feb. 20. The executive has promised to deliver a "modest" gross profit in the last three months of 2024 through a combination of lower materials cost and increased reliance on nonautomotive growth drivers such as green car credits -- a regulatory incentive which can be sold to other automakers that fail to meet increasingly strict emissions standards.

A gross profit in the fourth quarter of 2024 would represent a dramatic turnaround from the comparable period in 2023, when Rivian lost a jaw-dropping $124,162 per vehicle sold (around $1 billion in total).

Pulling off such a dramatic turnaround could boost Rivian's stock by demonstrating management's ability to execute its goals and possibly carve out a pathway to profitability by scaling up the company's business model. That said, gross profits aren't the only important factor to watch.

2. Look for signs of accelerating growth

While gross profitability would be great for Rivian, it only measures the difference between the company's revenue and the direct costs of manufacturing and delivering its vehicles. That isn't enough to establish a pathway to net income because it doesn't account for operating costs like office salaries and research, which are typically major outflows.

What Rivian really needs is top-line growth. And unfortunately, the company looks primed to disappoint in the fourth quarter. According to the most recent data, it delivered only 14,183 vehicles from October to December, which is up just 1.5% compared to the prior-year period.

Large established automakers like Tesla can sustain slow or even declining revenue growth. However, this could spell doom for Rivian because the company has yet to scale into a sustainable business model. While selling regulatory credits could be a stopgap in the near term, there is a serious risk that EV regulations could change. And over time, the market for buying regulatory credits will naturally shrink as more traditional automakers invest in their own EV production.

3. New products and partnerships

Ultimately, Rivian's salvation may depend on releasing new products based on its new mid-sized vehicle platform, which will underpin new, cheaper models like its R2, expected to be available for $45,000 in 2026 (compared to the R1S, which starts at $75,900). Cheaper offerings could jump-start growth by introducing Rivian's products to the mass market. Investors should look for more updates about Rivian's progress toward bringing new vehicles to market.

Image source: Getty Images.

Rivian's partnerships are another key factor to watch in its fourth-quarter earnings. In November, the company announced a $5.8 billion joint venture with German automotive giant Volkswagen to work together on software and electronics in their respective vehicles. In the near term, the deal will give Rivian a much-needed cash infusion while helping both companies unlock economies of scale in their vehicle electric systems.

A deep-pocketed partner like Volkswagen could be what Rivian needs to help it survive long enough to release new models in 2026 and 2027, potentially jump-starting growth. As of September, Rivian had only $6.74 billion in cash and short-term investments on its balance sheet compared to a quarterly operating loss of around $1.17 billion.

Is Rivian stock a buy before Feb. 20?

Fourth-quarter earnings will be a big deal for Rivian because of the expected swing to gross profitability. But I think the market will ultimately be disappointed by sluggish top-line growth and the reliance on selling regulatory credits, which doesn't look like a sustainable business model.

Rivian's survival will depend on the success of its new, cheaper vehicle programs next year. And I see few compelling reasons to bet on the stock until more information becomes available.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.