Is Rivian stock a buy right now?

The S&P 500 and Nasdaq Composite have held up well so far in 2024, but a stock that hasn’t been such a great investment is Rivian Automotive (RIVN 3.46%). Shares of the electric car maker are down nearly 45% in 2024. At just $13 per share, Rivian’s stock is dangerously close to all-time lows.

Could this be an opportunity to buy the dip, or would investors be best off avoiding a potential knife-fall?

The good news with Rivian

In June, Rivian announced the formation of a joint venture with Volkswagen. Under the deal, Volkswagen plans to invest up to $5 billion in Rivian. Working with a much larger automaker can help Rivian in a number of ways. First, it opens Rivian up to new geographic markets. Moreover, Rivian can use Volkswagen’s network of suppliers to help find more efficient ways to develop its expensive electric vehicles.

While the EV market is dominated by adze and a number of Chinese automakers, Rivian has a unique advantage. Unlike Tesla and many of its peers, Rivian’s car designs are more akin to a Jeep or Range Rover. Differentiating as more of an SUV player could be a smart long-term move, as it separates Rivian from larger competitors and could be more appealing to certain customer demographics.

While everything looks encouraging for Rivian, there are a few things investors need to be aware of.

Image source: Getty Images.

Not so good news with Rivian

The development of electric vehicles is extremely expensive. Considerable investment in capital expenditure (capex), engineering talent and marketing is required. As seen in the table below, Rivian still hasn’t figured out how to build their vehicles in a profitable way.

Image source: Rivian Investor Relations.

According to the chart above, it’s easy to see a few big issues. First, Rivian’s production was all over the place. While shipments rose nominally, the company’s production capacity was volatile. This relationship is suboptimal and could be a problem in terms of meeting consumer demand and supply.

The bigger problem, however, is related to the company’s lack of profitability. For the quarter ended June 30, Rivian’s gross profit per vehicle was 1 negative $32,705. Worse, Rivian’s negative unit economics haven’t improved at all over the past year.

So while the company has attracted a lot of attention and shown that it can generate some demand for its electric vehicles, Rivian has so far managed to demonstrate that it has mastered car manufacturing in a profitable way.

Is Rivian stock a good buy now?

It’s hard to make a case for investing in Rivian over a much larger, sophisticated and profitable peer like Tesla. Moreover, although Rivian’s valuation has fallen, I personally think the sale is justified.

As I see it, the investment in Rivian is rooted more in an optimistic long-term view of the EV industry in general. I think investors looking for exposure to the EV industry would be better off evaluating other options.

My trepidation about Rivian is that the stock could experience some upward momentum, but for the wrong reasons. So while this would make Rivian appear like a good investment, the underlying reasons that fuel the share price may not be rooted in solid fundamentals.

To make a strong case for Rivian, I think the company will need to do more to demonstrate that its business is sustainable. Until then, I was looking away and following Rivian’s progress.