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The electric vehicle (EV) revolution is in full swing. rivian (NASDAQ:RIVN) has become a player with interesting products and bold ambitions. However, despite the company's potential, I think there are several compelling reasons why Rivian stock could be a risky investment.
burned cash
A big concern I have is its lack of profitability. As a young company still in its growth phase, Rivian is burning money to increase production and develop new vehicles. While this cash burn is expected in the world of EV startups, the speed at which the company is depleting its reserves is alarming.
Reports indicate a decline from nearly $20 billion at the end of 2021 to less than $8 billion today. This trend raises questions about whether the company will be able to continue in the long term without additional financing.
What is even more worrying is that losses have accelerated in recent years, increasing at a rate of 35% annually.
Competence
The electric vehicle market is becoming increasingly crowded. Established automobile manufacturers such as Ford and General Motors They are investing resources in the development of their own electric vehicles. Besides, tesla continues to dominate market share, making it difficult for new entrants to gain a foothold.
These newcomers face an uphill battle to convince consumers to choose their brand over more established players with proven track records, especially in less established regions globally.
Let's take a look at the numbers, first at the price-to-sales (P/S) ratio, since the company is not profitable. The ratio of 2.8 is much larger than the calculated value of 0.3 times. Even with 33% growth expectations for the next few years, I fear the market is not convinced. With the share price falling more than 50% in 2024 alone, I find it hard to disagree.
The company has ambitious plans for the future, and its R1T pickup truck and R1S SUV are already generating interest. As many investors in the electric vehicle sector know, turning those plans into reality is a different story. Manufacturing delays and production setbacks could severely hamper the ability to meet goals and emerge as a trusted brand.
In a period of economic uncertainty and high interest rates, investors should be wary of the inherent risk associated with a young company navigating the complexities of large-scale automobile production.
As Tesla CEO Elon Musk has noted many times in recent years, high interest rates and potential economic downturns could dampen consumer enthusiasm for high-priced electric vehicles. In this environment, government incentives for electric vehicles could be reduced or eliminated, making it even more difficult for new players to establish themselves.
Friends in high places
Rivian has a strong partnership with amazon, which has reserved a significant number of delivery vans. However, this also creates a situation where success is somewhat tied to the fortunes of another company. If amazon changes its delivery strategy or decides to source vans elsewhere, it could be a blow to Rivian's production volume and revenue stream.
The bottom line
Rivian has the potential to be a major player in the electric vehicle landscape. The company's innovative vehicles and strong partnerships are impressive. However, for me, the current outlook is far from rosy.
The combination of unproven profitability, a saturated market, execution risk and economic uncertainty makes this a gamble at best. I'll stay away from Rivian stock for now.
