Here’s what Rivian could say on Nov. 7 to spark a rally in the stock.
Investors following the electric vehicle (EV) sector have high hopes for its long-term success Rivian automotive industry (RIVN 2.92%). While no one expected it would be easy to follow a similar path TeslaRivian has some unique aspects that give it a fair chance.
But the road to success had several obstacles that prevented the company from moving further towards profitability. Rivian shares have paid the price, falling about 57% so far this year. However, the company has prepared for a turnaround. The upcoming quarterly report could give investors reasons to think the direction is up from here. Let’s take a look at what management might say on November 7 when it provides that update.
Rivian’s early cash crunch
Rivian had aggressive plans from the start. It announced plans to invest $5 billion to build a second production facility by the end of 2021. Recall that Rivian produced just 1,015 electric vehicles that year and delivered just 920. The brand was well received, and the company successfully managed to ramp up volume, delivering over 50,000 units. two years later.
But that volume increase was more expensive than expected. Input material costs were high and supply chain constraints increased costs, while demand growth for electric vehicles began to slow. The company responded by quickly backtracking capital expenditure plansincluding postponing plans to develop the second production site.
Rivian has raised nearly $3 billion in 2023 alone, including $1.5 billion issuance of bonds last October. But despite raising money along the way, Rivian’s cash position has fallen dramatically over the past three years.
RIVN cash and equivalents (quarterly) data Ygraphs.
But Rivian still had $7.9 billion in cash and equivalents as of June 30. That includes $1 billion from one convertible note issued to Volkswagen Group. That’s part of a total $5 billion investment the global automaker is making with Rivian. The companies are also making plans a technology joint venture (JV) as part of the agreement.
What could November 7 bring?
There are three things Rivian management can focus on with the upcoming Q3 update. But a major catalyst for the stock could be if the company confidently says it now has enough capital to get through the production and ramp-up phase of its next-generation R2 SUV. The R2 platform will be followed by the R3 and R3X, scheduled for 2027. But if Rivian has the capital to reach 2027 while investing in future growth, it will also generate revenue from the R2 launch in 2026.
The company’s cash runway is critical, and expressing confidence in that situation will likely boost the stock after November 7. At the same time, what management says about 2025 production expectations will also play a role in how investors react. Rivian expects to produce no more in 2024 than it did in 2023. Part of that is due to the retooling of its Illinois factory in preparation for the start of R2 production next year. An increase in production plans will also give investors a reason to bid higher for the stock.
A third topic to monitor is the discussion about continued cost savings. Higher production and delivery volumes will not help the business or inventory if profitable sales are not achieved. Rivian’s Nov. 7 report could be a turning point for the company and its stock.
There is still a high risk that it won’t provide the information investors want to hear. So an investment before the third quarter report should still have the right allocation given that risk. However, if all goes well, the stock could currently be near a bottom with plenty of upside potential.
Howard Smith has positions in Rivian Automotive and Tesla. The Motley Fool has and recommends positions in Tesla and Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has one disclosure policy.