Rivian Stock: Buy, Sell or Hold?

Rivian (RIVN 8.98%) lost a lot of money again in the second quarter of 2024. That’s something investors should expect to continue, with management anticipating only a “modest” gross profit at best through the fourth quarter of the year. Given this data and outlook, is it worth buying an upstart electric vehicle (EV) maker that’s still trying to get its business off the ground?

Here are some things to consider when buying, selling or holding the call on Rivian.

Reasons to sell Rivian stock

If you are a risk averse investor, you should not own Rivian. It’s that simple. This is a new technology company trying to break into the automotive sector, an industry dominated by giant international companies. Only part of the problem is that it makes electric vehicles. A key piece of his business plan is to create his own technology and software, so he’s really going it alone in a David versus several Goliaths approach.

Image source: Rivian.

Rivian has achieved notable successes. Its trucks are generally appreciated, it has a partnership with Amazon for delivery trucks and just struck a deal with Volkswagen which will likely find Rivian technology in Volkswagen vehicles. But that doesn’t change the fact that Rivian is losing money — and lots of it. In the second quarter, the loss was $1.46 per share. This has grown year on year and the red ink will continue to flow.

The big goal is for the company to produce a “modest” gross profit by the end of 2024. Gross profit is basically just the cost of making the vehicle versus the money from selling it. A gross profit is a good thing, of course. However, other costs further down the income statement must be considered, such as selling, general and administrative expenses (running the business) and research and development (a heavy burden for a company developing its own technology).

Together, these two items totaled $924 million in the second quarter. A modest gross profit would not even come close to covering these necessary expenses.

To reiterate: If you can’t stand owning a high-risk upstart company, don’t buy Rivian.

Reasons to buy Rivian stock

That said, if you’re a little more aggressive, the Rivian looks more and more like it’s going to be a survivor in the EV space. For starters, despite spending a ton of money to build the business, it still has about $7.7 billion in cash and short-term investments on its balance sheet. That was supported in the quarter by a $1 billion cash infusion from Volkswagen, made pending a formal partnership between the two companies. There is another $4 billion in potential investment from Volkswagen if the partnership deal is completed as planned.

So despite the massive investments made to build the company, there are still massive amounts of cash available to get the job done. More importantly, additional cash is on the way if Rivian’s management team does well. So far, Rivian has done quite well, noting that it recently launched an updated truck and overhauled its manufacturing processes and technology as planned to produce more trucks using less money.

If the company’s technology will be integrated into Volkswagen cars, as seems likely at this point, Rivian’s larger plan to own all of its technology (so it can sell it to others) will also pay off.

For investors with a high risk tolerance, Rivian’s progress toward a sustainable business appears to be moving quite well. If it succeeds, the stock could be a big winner as investors will be able to afford a higher valuation as it gets closer to achieving profitability.

Reasons to own Rivian stock

Maintaining Rivian is a tougher call. If you bought it back when the stock was trading at over $100 per share, you probably have pretty big paper losses. It could take years to break even. If you’ve made capital gains elsewhere in your portfolio, you may want to consider capturing losses on Rivian shares to offset the capital gains taxes you’ll face. There is likely to be enough time to buy back Rivian shares after the 30-day period required to avoid the wash sale rules involved in tax loss harvesting.

RIVN data by YCharts.

That portfolio-level consideration aside, Rivian is making notable progress as a company. If you bought it thinking it would be a survivor in the EV space, well, your investment thesis seems to hold. If you can handle the uncertainty of owning a money-losing upstart, it doesn’t seem like giving up now makes a lot of sense.

Rivian stock is not for the faint of heart

The truth is that only a small number of investors will want to own Rivian. It is a high-risk investment in an upstart company trying to break into a well-established industry with a very large number of competitors. It really is as hard to do as it sounds, and only the most aggressive types will find that kind of uphill battle appealing.

At the same time, Rivian seems to be holding its own in what is truly a massive effort. You could even argue that it’s doing pretty well, even if red ink will continue to flow. It’s increasingly looking like Rivian has what it takes to survive and thrive in the automotive space, noting that the Volkswagen deal is a huge vote of confidence in its technology. If you have a strong stomach, it might be worth dipping your toes into the Rivian story.