Is Rivian Automotive stock a buy?

Rivian Automotivehis (RIVN -5.23%) Shares fell 7% on Aug. 7 after it posted a mixed second-quarter report. The electric vehicle (EV) maker’s revenue rose 3% year over year to $1.16 billion and beat analysts’ expectations by $20 million.

But its net loss widened from $1.2 billion to $1.46 billion, or $1.46 a share, missing the consensus forecast by $0.21. It slightly reduced its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from $861 million to $860 million. Those numbers weren’t impressive, but Rivian had already warned investors of a slowdown this year as it focused on modernization. its factories instead of stepping up its deliveries. Rivian’s stock may remain in the penalty box for at least a few more quarters, but is it worth piling up now at an 80% discount to its IPO price?

Image source: Rivian.

What does Rivian expect to happen in the next few years?

Rivian sells the R1T pickup and the R1S SUV for the mainstream EV market and also produces custom electric delivery vans for its top investor. Amazon. It plans to launch its cheaper R2 SUV in 2026, followed by the higher-end R3 and R3X SUVs in late 2026 to early 2027. The company will also continue to honor Amazon’s long-term order for 100,000 vans by 2030 and plans to sell those vans to other companies over the next few years.

Rivian’s deliveries were 24,337 vehicles in 2022 and 57,232 vehicles in 2023. It ramped up production as it overcame its supply chain constraints and installed its cheaper Enduro power unit in more of its vehicles.

But in the first half of 2024, Rivian produced only 23,592 vehicles. For the full year, its production is expected to be flat at around 57,000 vehicles. That slowdown was mainly caused by a planned temporary shutdown of its plant in Normal, Illinois, in April to revamp its production line and reduce fixed costs per vehicle, as well as other macro and competitive headwinds.

Rivian expects its production improvements to drive it to a “modest gross profit” by the fourth quarter of 2024. It also aims to narrow its adjusted EBITDA loss from $3.98 in 2023 to 2, $7 billion in 2024, even as its full-year capital spending rises. 17% to $1.2 billion. That was the same outlook it offered in its first-quarter report in May.

Can Rivian ramp up production successfully?

Rivian is still a bit of an underdog compared to adzewhich produced 1.85 million vehicles in 2023. But it is doing better than smaller EV makers such as Lucidwhich produced only 8,428 vehicles in 2023.

The bulls believe Rivian can successfully scale the business, but the bears believe it will burn through too much cash before that happens. However, his new partnership with Volkswagen should remove some of these concerns.

In late June, Rivian partnered with the German automaker to jointly develop new electric vehicle architectures and software through a new joint venture. Volkswagen will invest up to 5 billion dollars in this partnership. This consists of $1 billion in Rivian notes convertible into its common stock on December 1; two additional investment tranches of $1 billion in 2025 and 2026; an initial investment of US$1 billion in the JV; and an additional $1 billion loan to the JV in 2026.

Rivian ended the second quarter of 2024 with $9.18 billion in total liquidity, including $7.87 billion in cash, cash equivalents and short-term investments, so it should still have enough cash to fund its launch the new R2 and R3 vehicles over the next three years. . Its low debt-to-equity ratio of 0.8 also gives it breathing room to acquire more leverage.

Rivian still seems underrated

Analysts expect Rivian’s revenue to rise 7 percent to $4.77 billion this year as it delivers slightly more vehicles to offset its flat production rates. But from 2023 to 2026, they forecast the automaker’s revenue to grow at a compound annual growth rate (CAGR) of 29% to $9.61 billion as it ramps up production and launches new vehicles .

With an enterprise value of $11.26 billion, Rivian is trading at just 2.4 times this year’s sales. In comparison, Tesla and Lucid trade at 5.9 and 6.9 times this year’s sales, respectively. So Rivian looks undervalued relative to its growth potential — and could still be a great EV play for patient long-term investors.