Warning Light: Rivian Stock Is Beginning to Look More and More Like a Money Pit

Stocks to sell

As one of the most prominent players in the electric vehicle space, Rivian Automotive (NASDAQ:RIVN) is now starting to lose its shine. Although the company surpassed Q1 estimates, long-term stability is still likely not viable for the EV company.

With a significant $1.24 per share loss and ongoing cash burn, Rivian faces challenges common in the struggling EV sector. Despite capturing 5.1% of the EV market share and increasing demo drives by 90%, sustainable profitability remains uncertain. Accordingly, long-term investors may wonder what to do with this holding.

Now, Rivian’s launch of their new R2 platform at $45,000 appears to be stimulating demand in a competitive market. However, the company’s forward profitability prospects are questionable. Future cash raises and potential policy changes under a second Trump administration could further complicate Rivian’s financial outlook.

Rivian is Sued Due to SEC Violation

Investors now have legal concerns to add to the list of issues around RIVN stock. A lawsuit has been filed against Rivian, alleging a range of securities law violations.

The complaint alleges that during the class period, defendants made false statements or omissions regarding Rivian’s product demand and its ability to handle economic challenges. These included overstating demand, increased cancellations due to factors like high interest rates, and a deteriorated order bank. 

Consequently, Rivian’s expected earnings and vehicle production targets for 2024 were hampered, rendering its public statements misleading and inaccurate. There are now questions about whether previous financials will be restated, or what future remedies may be (and what they may cost the company, and shareholders by extension).

Another Round of Layoffs

Adding to the list of recent negative news, Rivian recently announced a reduction in salaried positions to improve efficiency, according to Central Illinois Proud. Spokesperson Kelli Felker confirmed the cuts targeted salaried roles, citing enhanced manufacturing efficiency as a factor in the decision.

In April, Rivian also announced a 1% layoff, allowing a 10% decrease in salaried staff. This boosted cost efficiency under CEO RJ Scaringe’s management. In Q1, Rivian revealed a loss of $38,784 per vehicle, totaling an EBITDA loss of $798 million. The company also reassured its investors that it would produce 57,000 in the Illinois facility.

Moreover, Rivian will also soon launch the R2 after introducing R1S SUV and R1T pickup. This surprised the public, especially when it also revealed the R3 platform. 

Rivian is At Risk in a Crashing EV Market

McKinsey’s biennial survey of over 30,000 consumers across 15 major countries, representing 80% of global sales, revealed concerning trends for EV investors. In the U.S., over 40% of current EV owners plan to switch back to combustion engines for their next vehicle, significantly higher than the global average of 29%.

Respondents’ main worries included inadequate public charging infrastructure, high ownership costs, and challenges with long-distance travel. Despite strong growth expectations, the National Electric Vehicle Infrastructure program only managed to establish eight operational stations in two years, with limited state funding from the $5 billion federal initiative. 

While the preference of many EV owners to return to combustion engines is concerning, Rivian remains focused on its controllable factors. This includes refreshing its R1 platform recently and advancing plans for the R2 crossover’s 2026 launch, accelerated to start production in Illinois rather than awaiting completion of its Georgia facility. This strategic move utilizes existing capacity effectively, saving over $2.25 billion and expediting the release of a more affordable vehicle. 

It’s my view that there may be too much hair on this EV stock to consider buying right now. If things turn around, that view may change. But I think long-term investors have better options to consider in this growth sector.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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