Contemplating Purchasing Rivian Shares at Prices Under $15?
Rivian Motors (RIVN dropping by 2.78%) has observed an upward trend in its stock value during the latter half of the year. Over the past month, shares of this electric vehicle (EV) manufacturer have escalated by 38%, as we speak. However, the stock has experienced a decline of roughly 40% in 2024.
As the company stands on the brink of a transformation heading into 2025, potential investors may question whether this is the right moment to invest in Rivian stocks, currently trading under $15 per share.
Positive signs for Rivian
The recent spike in Rivian shares was primarily due to investors becoming aware of two significant deals that will bolster the electric vehicle startup's financial stability. The automotive industry is notoriously capital-intensive, with profitable cash flow only materializing once production and sales reach high volumes. Therefore, Rivian's partnership with the Volkswagen Group was a significant boost, as it consists of a $1 billion investment from Volkswagen through a convertible note, already completed, and additional $5.8 billion in future investments.
Another $1.3 billion will be invested in a 50% equity stake in a new technological joint venture (JV) between the two organizations, which will enable Volkswagen to license Rivian's intellectual property. Future equity investments from Volkswagen are also expected over the coming years. This JV will operate as an independent company, co-led by Rivian's chief software officer and Volkswagen's chief technology officer.
The remaining investment of up to $3.5 billion will be allocated in various forms, including Rivian equity, contingent upon specific milestones. Many investors believe that this arrangement will provide Rivian with enough resources to push toward the launch of its more affordable R2 platform, planned for 2026. Additionally, another announcement brought even more optimism.
The U.S. Department of Energy (DOE) announced that it will provide Rivian with a loan of up to $6.6 billion to finance the construction and development of Rivian's new manufacturing plant in Georgia. This facility will eventually produce Rivian's R2 and R3 lines of fully electric SUVs and crossovers, which investors believe will generate positive cash flow and profit, once sales volumes reach sufficient levels.
Elon Musk: friend or foe?
While the near-term outlook appears somewhat mixed, EV industry experts are concerned about the potential impact of the incoming Trump administration on existing tax credits for EV buyers. Although cash-purchased Rivian vehicles are exempt because of their high list prices, leased EVs qualify. The affluence of Rivian's forthcoming R2 and future R3 lineup may qualify based on current regulations, leading to some investor pessimism concerning Rivian's ability to achieve the necessary unit volumes.
However, Tesla CEO Elon Musk now serves as an advisor to Donald Trump and is advocating for the growth of the EV industry. Musk supports eliminating tax credits but remains committed to the electrification of transportation. Despite the slowing EV demand growth, sales continue to climb.
In Cox Automotive's latest EV Market Monitor report, published on Dec. 19, U.S. EV sales demonstrated a steady uptrend. Both new and used EV sales demonstrated growth in November, with new EV sales increasing by 10% compared to October and recording a 13.6% year-over-year increase. EVs represented an 8.5% share of U.S. new vehicle sales in November.
The case for Rivian stock
While Rivian's financial position has improved significantly due to the investments discussed, the company is still hemorrhaging money. Rivian anticipates achieving positive gross margin in the current quarter, but the contribution will originate from sources like regulatory credit sales, vehicle servicing, and software.
The company is lowering material costs associated with its R1 lineup and must continue to do so as it transitions to the R2 vehicle. Success in the R2 rollout is essential for Rivian, as it depends on resonating with consumers and witnessing a substantial expansion in sales volumes beyond the estimated 51,000 vehicles that will be delivered in 2024.
If successful in its endeavors, investing in Rivian stocks below $15 could prove to be a lucrative market play. However, investors should remain mindful of the risks, which include challenges in maintaining cost cuts and the uncertainty of market acceptance for the R2 and R3 vehicles. As such, an appropriate portion of an aggressive investment portfolio would be the advisable approach.
Given the recent investments, such as the $1 billion from Volkswagen and the potential $6.6 billion loan from the DOE, potential investors might consider increasing their finance in Rivian stocks, seeing it as a promising opportunity for investing money in the electric vehicle market. However, it's essential to consider the company's ongoing financial losses and the potential risks associated with Rivian's R2 and R3 vehicle sales, emphasizing the importance of strategic, calculated investing in Rivian stocks.
