3 Things You Need to Know About Buying Rivian Today

3 Things You Need to Know About Buying Rivian Today

Investors who hopped on the electric vehicle (EV) bandwagon early are looking for reasons to stick around, as demand and sales growth have slowed and costs remain high. In fact, shares of Rivian (NASDAQ: RIVN) have slid 56% lower year to date, and Fisker has all but shuttered its doors amid a dire cash crunch.

But Rivian could offer a solid opportunity for long-term investors who believe in the future of electric vehicles taking over the roads and are comfortable with risk. If you’re willing to make that leap, here are three things you need to know about buying Rivian today.

1. Retooling risks

The second quarter of 2024 will bring some much-needed updates and retooling of Rivian’s only production factory. The good news: The changes to the R1 platform, new suppliers, and improved production efficiency will increase production rates by roughly 30%.

As Rivian goes about retooling its plant, it shows how focused the company is on improving costs and profitability. In fact, Rivian was able to improve its gross profit per vehicle by roughly $81,000 from the fourth quarter of 2022 to the fourth quarter of 2023.

But with the good news comes the bad, or at least potential risk. It’s a risk that investors have to make a note of, and if something during the planned shutdown and retooling goes awry, it will leave the company with a bumpy near-term for production and deliveries.

While there’s nothing to suggest the retooling will go awry or face challenges, it’s certainly something to listen in for during the next conference call.

2. Accelerated schedule

One of the biggest moves by Rivian recently was its announcement to accelerate the production timeline for its R2 vehicle. Originally, the plan was for the R2 to initially be produced at the upcoming Georgia plant. That plan was updated, and now Rivian will bring the R2 to its original Illinois factory, filling excess capacity and saving the company roughly $2.25 billion.

Saving $2.25 billion is a huge deal to a company with roughly $10.5 billion total liquidity, and with Rivian’s net cash used in operating activities reaching $4.87 billion for 2023. Most importantly, however, is that the upcoming R2 will launch at a much lower price point than its R1 vehicles — roughly $30,000 cheaper. That lower price point will entice consumers who have been on the fence about buying a Rivian vehicle but weren’t willing to spend over $70,000.

3. Gross profit

Investors would normally watch Rivian’s production and deliveries for signs of healthy demand and growth, but we already know that the start-up EV maker’s forecast for both is roughly flat compared to last year.

That means investor focus for 2024 will be on whether the company can turn gross profit-positive, as it aims to do. While executing this will come with a thin margin of error, considering production won’t increase in volume this year, the plant retooling and supplier negotiations should improve efficiency and reduce costs.

Further, Rivian’s gross profit was negatively impacted by write-downs on inventory and losses on firm purchase commitments in 2023, and those are expected to decrease over time. In fact, management believes those losses will not be material by the fourth quarter of 2024, enabling the company to finally become gross profit-positive.

What it all means

Investing in Rivian is a high-risk, high-reward investment, one that remains highly speculative amid heavy cash burn in an industry with slowing demand for EVs. However, if the company can execute its plant shutdown and retooling flawlessly, accelerate the timeline for its R2 vehicles while using excess capacity in its original factory, and become gross profit-positive in 2024, it could be enough to convince investors Rivian can remain in business for the long haul.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

3 Things You Need to Know About Buying Rivian Today was originally published by The Motley Fool