When Rivian Automotive (NASDAQ: RIVN) debuted on the stock market, its potential shone brightly in the eyes of investors. However, the subsequent descent into reality highlighted the arduous challenge of establishing a profitable electric vehicle (EV) enterprise from scratch. The stark decline in Rivian’s shares from their lofty peaks is hard to ignore, with the stock now down nearly 60%.
Before diving headlong into the seemingly discounted stock, it is imperative to grasp the pivotal milestones looming on the horizon for the company.
Evaluating Rivian’s Stock Performance
The journey for Rivian’s shares has been a tumultuous one, plummeting approximately 60% from their 52-week highs. Delving further back, beyond a year, reveals an even harsher reality as Rivian’s stocks have nosedived by over 90% from their pinnacle, post its IPO in late 2021.
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Pause for a moment and contemplate that stark 90% decline. Such a precipitous fall signifies that Rivian’s stock has virtually evaporated in value. A hypothetical $1,000 investment during the IPO would have dwindled to a mere $100 today. While Wall Street exhibits occasional misjudgments, downturns of this magnitude do not materialize without reason. Rivian’s conundrum stems from the waning enthusiasm for electric vehicles and insufficient investor admiration for its financial performance.
End of the Road in the Quest for the Next Tesla
Essentially, as the electric vehicle pioneer Tesla edged closer to sustainable profitability, investors scoured the landscape for mimic enterprises that could replicate its astounding stock ascension. Rivian, known for its impressive electric trucks, emerged as a viable contender.
To be just, the company has made significant strides within a short timeframe, notably escalating production volumes to nearly 60,000 vehicles annually. Achieving this feat necessitated immense dedication and toil.
However, in the first quarter of 2024, Rivian incurred nearly $39,000 in losses for each vehicle sold. Yet, this figure warrants contextualization. The company ceased its relentless pursuit of escalating production and shifted focus towards enhancing profitability. This transformative initiative necessitated upfront investments to refine production mechanisms. The plant has undergone revamping, with the company envisioning a modest gross profit by the fourth quarter of 2024.
Attaining this milestone marks a critical juncture. Without the ability to profitably manufacture its trucks, Rivian’s sustainability remains in jeopardy. A gross profit serves as the initial stride towards nurturing a self-sustaining entity, recognizing that substantial expenses lurk beneath gross profit on the income statement (including research and development, and selling, general, and administrative costs).
Notably, Rivian’s trucks command a hefty price tag. The ensuing objective pivots on introducing a more affordable model. However, this endeavor lies several years ahead, implying that an imminent transition to profitability for Rivian seems far-fetched. The overarching lesson is clear: Only audacious investors should contemplate Rivian stock amidst the colossal price plunge.
Rivian’s Fate Hinges on Flawless Execution
Rivian has commendably achieved significant milestones and boasts appealing products. Yet, a sustainable business model eludes it. Progressing to this stage mandates unwavering managerial expertise, primarily targeting a gross profit by year-end.
Thereafter, investors should monitor the company’s strides towards launching an entry-level model to broaden its consumer base. Prudent investors might find it judicious to await Rivian’s fourth-quarter performance before contemplating investment. Even then, it may be wise to delay purchase until after Rivian rolls out its cost-effective model.
In essence, the current juncture does not present a compelling case for purchasing Rivian stock unless one harbors an exceptionally high risk tolerance.
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