Rivian (NASDAQ:RIVN) is down over 90% from its IPO price, but investors still seem to hold out hope for Rivian stock. This, even though the company has been consistently missing production goals. Its Georgia facility’s plans were delayed because of cash flow issues. These factors have led to a bearish long-term trend known by most investors.
However, this is also a stock that’s seen a swift uptick of late because of a key catalyst I’ll get to in a minute. So, the question is whether RIVN stock may be a buy given its current valuation, or if this stock may represent something closer to a value trap at current levels.
Rivian and Volkswagen
If there’s one company who believes strongly in Rivian now, it is probably Volkswagen (OTCMKTS:VWAGY). The car company invested $5 billion into a joint venture with Rivian to develop software-defined car platforms.
CEO Oliver Blume expressed that the partnership aims to improve tech competitiveness, adding more cost-effective solutions for both companies. Rivian benefits from this deal by obtaining essential funding, which is crucial for reducing its significant per-vehicle losses while expanding production and developing new products.
Rivian’s CEO RJ Scaringe also said the collaboration with VW would also boost Rivian’s capital needs for expansion. The company aims to launch a cost-effective model, the R2, by 2026 with a re-engineered feature.
After the partnership announcement, RIVN stock unsurprisingly surged, with many in the market calling the partnership a great opportunity for Rivian. For VW, the partnership offers access to Rivian’s technological expertise, crucial for addressing ongoing software challenges in its electric ID.3 and ID.4 models.
Moreover, VW also plans to put an initial $1 billion investment in Rivian to start with the software-defined cars.
Q2 Declining Production
Rivian produced 9,612 vehicles so far in Q2 2024, delivering 13,790 models. This shows a 15% increase in deliveries, but a 45.4% decline in production. This was the second consecutive quarter of reduced output, following a strong Q4 2023 where 17,541 vehicles were produced.
In the first half 2024, Rivian produced 23,592 units, falling short of its 2024 target by nearly 33,500 cars. The company hopes for a strong second half, with production solely taking place at its Normal, Illinois plant, while plans for a second Georgia plant are paused.
Rivian’s production and delivery results have not yet met expectations, but the company has held these numbers steady, believing it can ramp up production over time toward its longer-term growth targets.
Aside from production dilemmas, Rivian also faces financial hurdles. The company reported a $5.4 billion net loss over the past year, with cumulative losses totaling $16.8 billion since 2021.
The introduction of cheaper R1 models and the R2 could lower turnover if production remains constant. Additionally, the company’s Normal plant expansion aims to increase capacity to 215,000 vehicles annually by 2026, including 155,000 R2 units.
I’m Still Bearish on Rivian Stock
Investing in RIVN stock has been a losing wager since the company’s IPO. But with losses likely to narrow as production ramps up, and continued investments from key industry players like Volkswagen, there is some room for optimism among bulls trying to time the bottom in this stock.
That said, there are better growth stocks out there investors can pursue right now, in my view. Until Rivian shows signs it’s going to produce a profit in a reasonable amount of time, I’m going to have to wait on the sidelines.
It may be too late at that point, but this stock could decline much further from here if we do indeed get a recession. Thus, I think the balance of risk versus reward is skewed to the downside right now for Rivian.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.