The electric vehicle maker still looks deeply undervalued.
Rivian Automotive's (RIVN 3.85%) stock tumbled 7% on Aug. 7 after it posted a mixed second-quarter report. The electric vehicle (EV) maker's revenue rose 3% year over year to $1.16 billion and exceeded analysts' expectations by $20 million.
But its net loss widened from $1.2 billion to $1.46 billion, or $1.46 per share, missing the consensus forecast by $0.21. It slightly narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss from $861 million to $860 million.Those headline numbers weren't impressive, but Rivian had already warned investors of a slowdown this year as it focused on upgrading its plants instead of ramping up its deliveries. Rivian's stock could remain in the penalty box for at least a few more quarters, but is it worth accumulating right now at an 80% discount to its IPO price?
Image source: Rivian.
What does Rivian expect to happen over the next few years?
Rivian sells the R1T pickup and R1S SUV for the mainstream EV market, and it also manufactures custom electric delivery vans for its top investor, Amazon. It plans to launch its cheaper R2 SUV in 2026, followed by its higher-end R3 and R3X SUVs in late 2026 to early 2027. The company will also continue to fulfill Amazon's long-term order for 100,000 vans through 2030, and it plans to sell those vans to other companies over the next few years.
Rivian's deliveries produced 24,337 vehicles in 2022 and 57,232 vehicles in 2023. It ramped up its production as it overcame its supply chain constraints and installed its cheaper first-party Enduro drive unit into more of its vehicles.
But in the first half of 2024, Rivian only produced 23,592 vehicles. For the full year, it expects its production to flatline at about 57,000 vehicles. That slowdown was mainly caused by a planned temporary shutdown of its plant in Normal, Illinois, in April to retool its production line and reduce its fixed costs per vehicle, as well as other macro and competitive headwinds.
Rivian expects its production upgrades to drive it to a "modest gross profit" by the fourth quarter of 2024. It also aims to narrow its adjusted EBITDA loss from $3.98 in 2023 to $2.7 billion in 2024, even as its full-year capital expenditures rise 17% to $1.2 billion. That was the same outlook it provided in its first-quarter report in May.
Can Rivian successfully ramp up its production?
Rivian is still a tiny underdog compared to Tesla, which produced 1.85 million vehicles in 2023. But it's faring better than smaller EV makers like Lucid,which only produced 8,428 vehicles in 2023.
The bulls believe Rivian can successfully scale up its business, but the bears believe it will burn through too much cash before that happens. However, its new partnership with Volkswagenshould allay some of those concerns.
In late June, Rivian partnered with the German automaker to co-develop new EV architecture and software through a new joint venture. Volkswagen will invest up to $5 billion in that partnership. This consists of $1 billion in Rivian's notes, which can be converted to its common shares on Dec. 1; two additional tranches of $1 billion investments in 2025 and 2026; a $1 billion initial investment in the JV; and an additional $1 billion loan to the JV in 2026.
Rivian ended the second quarter of 2024 with $9.18 billion in total liquidity, including $7.87 billion in cash, cash equivalents, and short-term investments, so it should still have enough money to roll out its new R2 and R3 vehicles over the next three years. Its low debt-to-equity ratio of 0.8 also gives it some breathing room to take on more leverage.
Rivian still looks undervalued
Analysts expect Rivian's revenue to rise 7% to $4.77 billion this year, as it delivers slightly more vehicles to offset its flat production rates. But from 2023 to 2026, they predict the automaker's revenue will grow at a compound annual growth rate (CAGR) of 29% to $9.61 billion as it ramps up its production and rolls out its new vehicles.
With an enterprise value of $11.26 billion, Rivian trades at just 2.4 times this year's sales. In comparison, Tesla and Lucid trade at 5.9 and 6.9 times this year's sales, respectively. Therefore, Rivian looks undervalued relative to its growth potential -- and it could still be a great EV play for patient long-term investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Tesla, and Volkswagen Ag. The Motley Fool has a disclosure policy.
