Rivian stock is priced at all-time lows. Is now the time to buy?
Rivian Automotive (RIVN 0.73%) stock has had a tough 2024. So far this year, shares have lost roughly half of their value. But the company isn’t alone. Tesla stock has dropped by 29% over the same time frame.
What will happen to Rivian’s stock price in the year to come? Let’s find out.
This is the problem with Rivian stock
Since the company’s initial public offering (IPO) in 2021, Rivian shares have lost nearly 90% of their value. Yet over that time period, sales have increased by around than 9,000%. What’s going on?
The chief problem has been a reset in expectations. At the time of Rivian’s IPO, electric vehicle (EV) stocks were on fire. From the start of 2020 to end of 2021, for example, Tesla stock rose in value by more than 1,150%. Its market cap went from $70 billion to $1.1 trillion. Within this context, Rivian went public at $100 per share with an $80 billion market cap.
Since those highs, expectations have come down dramatically. Tesla’s stock peaked in value at roughly 30 times sales. Shares now trade at just 6.4 times sales. Rivian shares, meanwhile, peaked at roughly 70 times sales, though they now trade at 2.3 times sales.
EV sales growth has slowed sharply since those highs, making the chief problem an overly exuberant market. According to Cox Automotive, EV growth rates have decelerated faster than expected. First quarter EV sales were up 2.6% year over year, but were down 15.2% sequentially.
An improvement in EV capabilities, lower production costs, and new government incentives caused the market to price in a big surge in EV demand. Not only did that not happen, but the opposite occurred. The valuations of Tesla and Rivian cratered in response.
RIVN PS Ratio data by YCharts
Where will the company be one year from now?
Rivian’s future as a company over the next year won’t necessarily track the stock price. History makes that clear. Despite growing enormously, the share price struggled due to overinflated expectations. In the year to come, the opposite may be true. Expect the company to move a lot slower, but due to today’s depressed valuation, shares could outperform the underlying reality.
This year, Rivian still expects to produce around 57,000 vehicles. For context, Tesla produced 433,000 vehicles last quarter alone. Expect production growth to slow, however, given Rivian cut its annual capital expenditure budget from $1.75 billion to $1.2 billion in an effort to reduce cash burn ahead of its R2 and R3 model launches. The R2 is expected to launch in early 2026, while the R3 is expected sometime afterward.
The year ahead, therefore, will be relatively quiet. The company will be ramping up production facilities in Illinois to support these new budget-friendly models, with its sales base supported solely by existing models. While those models — the R1S and R1T — have won several prestigious awards with high customer loyalty, their $70,000 base price will limit Rivian from accelerating sales as rapidly as the past.
Yet there is one key development to track while waiting for the R2 and R3 launches: In May, Rivian management reiterated its expectation for a “modest” gross profit by the fourth quarter of 2024. Whether this milestone is achieved should have a strong influence on the stock price. While Tesla posted net losses through 2020, the company has generated positive gross profits since 2010. Rivian, for comparison, has lost roughly $2 billion on a gross basis over the last 12 months. If the company wants the market to backstop losses until the launch of the R2 and R3, it will first need to convince investors that it can at least generate a gross profit on a per vehicle basis. Doing so would add much needed momentum to investor confidence heading into 2025.
What will the stock price do in the meantime? It’s anybody’s guess. Apart from its potential success in realizing a gross profit this year, expect the share price to move sharply based on the company’s production guidance, taking a hit if the timeline is delayed to later 2026, or even early 2027. It’s a waiting game at the moment. And while shares could bounce off their recent lows due to a depressed valuation, don’t expect much movement until gross profitability and the R2 and R3’s future becomes clear. Patient investors can lock in today’s valuation, but it’s anyone’s guess where the share price will head in the year to come.