Is Rivian Stock a millionaire generator?

I’ve written about it often Rivian Automotive (RIVN 0.62%) in recent months. For investors hoping to pick the electric vehicle (EV) maker that could be next adzeRivian seems like the best bet. Based on the numbers, it’s not hard to come up with scenarios where its stock rises several times in value over the next few years.

But if you want to profit from Rivian stock, you’d be wise to follow this time-tested investment strategy: patience.

3 reasons why I love this EV stock

The main thing I love about Rivian is how it executes the Tesla playbook for growth. The first step is to produce a high-quality vehicle without compromise, even if this is outmoded by the mass market. Rivian has achieved this with the R1T and R1S models. Yes, these vehicles start in the $70,000s, and in the luxury trims, they can climb over $100,000.

But Rivian’s goal with them was to prove to consumers that they could make great vehicles they could rely on. A recent one Consumer Reports The survey found that Rivian owners had the highest levels of customer satisfaction and loyalty among both EV brands and conventional automakers. That should tell you all you need to know about Rivian’s ability to sway people’s opinions in a positive way.

Step two in the old Tesla playbook is to release a vehicle that is priced to be affordable to the masses. This brings us to the second reason I love Rivian right now: the biggest growth days are just ahead. Earlier this year, the company announced plans to produce three new models. All three — the R2, R3 and R3X — are expected to be available for less than $50,000. When Tesla launched its first mass-market models — the Model 3 and Model Y — it doubled its revenue base, then tripled it again. The same potential is available for Rivian with its new models.

The final reason I love Rivian right now is that it’s about to hit another major milestone: gross profitability. In the last quarter, the company lost around $32,000 for each vehicle sold. However, in the next few months, the company could cut that loss to zero and even turn a profit. On the latest conference call, executives predicted “modest gross profit” through the fourth quarter, adding that they expect to produce about 57,000 vehicles this year – right around what they produced last year.

There have certainly been counter sales, but Rivian isn’t alone in dealing with them. Tesla’s sales figures have dipped into early 2024. But if you believe in the long-term potential of the electric vehicle market, Rivian — which is doing everything it takes to become the next Tesla — looks like a good bet.

TSLA Revenue (TTM) data from YCharts.

This is how you make money with Rivian

There is clearly huge potential for Rivian’s stock price to rise over the next few years. But it won’t always be easy to stay invested. As mentioned, Rivian still loses money on every car it sells. Its current lineup is limited to just two high-priced luxury models. And its capital needs will be gigantic as it tries to build production facilities for its new mass-market models and ramp up production — models, it should be pointed out, that exist only as prototypes today.

No wonder the stock is down more than 90% from its initial public offering level in 2021 — and the risks remain very real. However, the current price may provide a good entry point for new investors today.

Today, Tesla shares are worth about $240 apiece. You might wish you had invested in it in 2017 when the stock was priced at just $20, right? Well, according to CEO Elon Musk, the company at the time was about a month away from bankruptcy. It’s hard to imagine now, but the market was highly skeptical of the company’s ability to sustainably and profitably ramp up production of the Model 3 — a model that appeared to have great potential, but only on paper.

In 2017, Tesla’s valuation was about 5 times sales. Rivian’s current price-to-sales ratio is approximately 1.9. Could Rivian follow in Tesla’s footsteps? I think the low valuation — Rivian’s market cap right now is just $11 billion — is attractive enough to warrant investors’ attention.

Assuming a sales ramp similar to Tesla’s, Rivian is likely to generate about $30 billion in annual revenue by 2030. Even at the low valuation multiple, that would imply a total valuation of nearly $60 billion dollars — more than 5 times the current value. So, to be a millionaire in the market, you will need to invest a significant amount immediately.

But if Rivian can execute, expect the valuation multiple to return closer to 5x Tesla’s sales. At that multiple, a $40,000 investment today could become $1 million or more in the next six years.