Home Latest News Down 63%, Here Are the Pros and Cons of Investing in Rivian...

Down 63%, Here Are the Pros and Cons of Investing in Rivian Automotive Stock Today – The Motley Fool

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Rivian Automotive (RIVN -1.08%) entered the stock market in November 2021 with a lot to prove, but the company has yet to live up to the hype. The pure-play electric vehicle (EV) manufacturer, which is focused on developing electric trucks and SUVs, has shed 63% of its value since the beginning of the year, leaving its market capitalization at $34.5 billion today.
The company posted its second-quarter financial results on Aug. 11, which had some good and not so good components. But in light of its ongoing pullback, is now the prime moment to buy Rivian stock? Let’s examine the pros and cons of investing in the EV company right now. 
Image source: Getty Images.
Per Allied Market Research, the global EV market is forecast to be worth $824 billion by 2030, translating to a compound annual growth rate (CAGR) of 18.2%. By 2040, BloombergNEF projects that global electric car sales will eclipse 66 million, up from 3 million in 2020. The demand for Rivian’s vehicles lines up with these monstrous forecasts — as of June 30, the company has a net consumer backlog of 98,000 units, and it noted in its earning release that “momentum continues to increase.”
High demand is great to see, but the company still has to deliver on its promises. In Q2, it produced 4,401 vehicles, up 72% year over year, and management also confirmed that it’s on track to produce 25,000 cars for the full fiscal year. It’ll be important for investors to monitor Rivian’s progress in the quarters to follow, but it was surely comforting to see its production goals remain on track despite a wide range of unfavorable economic headwinds. Plus, the company does have $15.5 billion of cash, cash equivalents, and restricted cash on its balance sheet, so it should be well-funded enough to continue ramping up production for the foreseeable future. 
In reference to the EV market, a rising tide won’t lift all boats. In other words, investors still need to distinguish between the secular winners and losers. Whether it be other pure-play electric car makers like Tesla and Lucid Group, or traditional automakers like Ford and General Motors, Rivian faces stiff competition from all over. Competition shouldn’t be the sole reason investors decide not to invest in the EV stock, but it shouldn’t be ignored, either. As more companies enter the playing field, it’s harder for a business to become profitable and generate positive cash flow.
In its second-quarter outing alone, Rivian endured a net loss of $1.7 billion, much greater than its $580 million net loss in the same quarter a year ago. Likewise, management alerted investors that the company will likely suffer a wider loss for the full fiscal year than previously expected. Instead of generating an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $4.75 billion, management revised its forecast to negative $5.45 billion. And despite its robust cash position, the company is swiftly burning through its capital, ending Q2 with free cash flow (FCF) of negative $1.6 billion.  
Rivian is a textbook high-risk, high-reward investment. On one hand, the EV company has potential to help pave the way in a multitrillion-dollar industry. But on the other hand, its monumental losses combined with pressure from many other well-funded businesses are hard to brush aside. There’s no guarantee that Rivian will ever generate a positive bottom line, but if it starts to demonstrate a clearer path to profitability moving forward, this stock will likely be trading at much higher levels than it is today. In short, Rivian is reserved for daring investors at the moment, but buying in at today’s lows could lead to fortunes down the line. 

Luke Meindl has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/17/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.


Previous articleiPhone 14 Pro always-on display details leaked in full – here's how it works – msnNOW
Next articleNASA Supports Research to Advance Earth Science – NASA Jet Propulsion Laboratory