Rivian has just forecast that this important metric will turn positive. Is now the time to buy the stock?

Rivianhis (RIVN -5.23%) the second quarter could become the most important in its history after the electric vehicle (EV) maker introduced its next-generation vehicle platform and partnered with The Volkswagen Group (OTC: VWAGY). However, those important events occurred towards the end of the quarter and did not have a major impact on Q2 results.

Let’s take a look at Rivian’s most recent quarterly results and why the company looks poised to turn the corner.

The cash burn continues

Rivian’s second-quarter revenue rose 3 percent year-over-year to $1.16 billion as the company delivered 13,790 vehicles in the quarter, up 9 percent from a year ago. It produced 9,612 vehicles this quarter. Production decreased both year-on-year and sequentially due to a planned shutdown at its factory for an equipment upgrade.

The company reiterated its guidance that it will produce 57,000 vehicles for the year.

The biggest problem for Rivian has been that it sells its vehicles for far less than it costs to produce them. This continued in the second quarter as it produced a negative gross profit of $451 million. This equates to a loss of $32,705 per vehicle on the cost of manufacturing them alone, and does not include costs associated with selling the vehicles or corporate or research and development costs. Rivian said its gross loss was negatively impacted by $59 million, or $4,278 per vehicle delivered, of costs that will not be in its long-term structure.

Overall, Rivian reported an operating loss of $1.38 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), meanwhile, was negative $860 million.

Not surprisingly, given its negative gross margins, Rivian has continued to burn cash. It had operating cash outflows of $754 million in the quarter. It spent another $283 million in capital expenditures (capex), pushing free cash flow to a negative $1.04 billion in the quarter.

The company ended the quarter with $7.87 billion in cash and short-term investments. It also had $5.53 billion in debt.

Image source: Getty Images

Future improvements

Although they didn’t show up in Q2 results, Rivian made a number of important moves during the quarter to improve both its gross margins and balance sheet.

Rivian has taken two major steps to improve gross margins. First it repurposed its main manufacturing facility in Illinois. Management expects this update to improve the manufacturing process, particularly cycle times, plant utilization and costs. Second, it revamped the design of the second-generation vehicles to eliminate costs. This included switching to an area network architecture to significantly reduce the number of electronic control units in its vehicles, reducing vehicle complexity and switching to some lower cost materials.

Rivian expects these changes to drive modest gross profit in Q4 and full-year 2025 as it plans to further lower material and conversion costs. Management expects positive gross profits in 2025, despite the company deciding to halt production for more than a month as it upgrades and integrates new equipment at its Illinois plant ahead of the launch of its R2 vehicles.

In addition to these moves, the company also struck a deal to strengthen its balance sheet through an investment and partnership with Volkswagen. The German automaker will make an initial investment of $1 billion in Rivian, with up to $4 billion in additional investment planned once its joint venture (JV) is approved and certain financial and technology milestones are met. Rivian expects the JV to help it on costs, with Volkswagen’s size helping it get better prices from suppliers.

Buy, sell or keep?

Rivian is heading in the right direction. Its newly redesigned model range and improved manufacturing facility should lead to sustained positive gross margins. Meanwhile, it is now backed by some pretty big companies in Volkswagen and Amazonwho is its largest shareholder and for whom it makes delivery vans.

The company has the potential to be a big EV winner in the long run, but it’s still young. Any investment at this point is more speculative.