The electric vehicle (EV) market is expected to experience exponential growth in the coming years. Analysts predict that by 2030, two out of every three cars sold globally will be EVs. With such rapid growth, numerous manufacturers have entered the EV race to establish their presence.
One such entrant is Rivian Automotive (NASDAQ: RIVN), a start-up that offers electric SUVs and trucks for outdoor enthusiasts. Rivian’s initial public offering (IPO) in 2021 was highly anticipated and became the largest IPO for any American company since Meta Platforms in 2012.
However, the hype surrounding Rivian doesn’t necessarily mean it should be included in your portfolio. Despite gaining prominence in the EV industry, there are a few reasons why I would avoid investing in this stock.
1. Lack of profitability
The most significant reason I am not buying Rivian is its inability to generate profits. Although this is common among new companies, especially in the auto industry due to high manufacturing costs, I prefer investing in companies with proven profitable business models.
Supporters of Rivian argue that it will eventually become profitable. However, I am not as confident. While the company has made progress in production and deliveries, it is still far from achieving profitability.
In the most recent quarter, Rivian reported a net loss of $1.37 billion and produced 16,304 vehicles. This is far from desirable! It’s worth noting that progress has been made since the third quarter of the previous year when the company reported a loss of $1.72 billion and produced 7,363 vehicles. During its conference call with analysts on November 7, the company mentioned that its gross loss per vehicle had improved by approximately $2,000 from Q2 to Q3.
Due to the lack of income, the company’s cash reserves have decreased by nearly 60% in just two years. Despite holding close to $20 billion in cash and equivalents after its IPO and fundraising efforts in late 2021, Rivian now has less than $8 billion. If drastic changes don’t occur soon, Rivian may face the grim reality of bankruptcy.
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2. Overreliance on a single project
Another aspect often highlighted by Rivian supporters to counter its underwhelming financial performance is the planned construction of a “megafactory” in Georgia. Once completed in 2030, management expects the factory to produce approximately 400,000 vehicles per year, a significant increase from the estimated 54,000 in 2023.
While I acknowledge the importance of long-term strategies to maintain competitiveness, Rivian may be attempting to run before it can walk. This factory is projected to cost a staggering $5 billion. For a company that doesn’t generate any cash flow, planning such an expenditure seems like a risky bet. Construction projects of this scale are known for delays and missed deadlines, resulting in additional costs.
If Rivian survives this challenging period and achieves profitability, I will reconsider adding it to my portfolio and give credit where it’s due. However, for now, investors seeking exposure to the EV market should explore other stocks. Rivian carries too much risk at the moment.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
Rivian Stock Is Risky. Here’s Why I’m Not Buying. was originally published by The Motley Fool
