Should I buy Rivian stock as Tesla’s influence fades?

Rivian (NASDAQ:RIVN) stock has fallen from a high of around $179 to just $10.27 at the time of writing. The poor performance has been significant and reflects the company’s under-delivery on promised growth.

However, as investors wonder why Tesla it trades at 58 times earnings – too expensive for a company that is currently in the opposite direction – should we start looking at Rivian instead?

What Wall Street Says

When I evaluate how much a stock should be worth, one of the first places I look is the stock’s price targets. These are estimates given by analysts and provide good insight into what a stock is worth or could be worth.

For Rivian, the average target price is $17.58, representing a 71.6% premium to the current stock price. That is a very good sign. It’s worth noting that Tesla tends to trade very close to its stock price target.

Rivian stock has 11 Buy ratings, five Outperform ratings, 10 Hold ratings, one Underperform rating and one Sell rating. Despite this increase, it is worth noting that the stock price targets are not updated as frequently as we expect. Some may be outdated.

Not much better here

While things may not be looking good for Tesla right now, they aren’t much better with Rivian. It delivered stronger growth than Tesla during 2023. But when Tesla pulled back, it wasn’t that hard to do.

In 2023, the Irvine-based company delivered 50,122 vehicles and brought in $4.4bn in revenue, which is more than double what it earned in 2022. The net loss narrowed in 2023 to $5.4bn, down from $6.7bn in 2022.

However, there are several issues, including margins. In the fourth quarter of 2023, Rivian’s gross margin was -46%, meaning it lost money on every vehicle sold. This maximum equals $43,372 per vehicle delivered.

Margins worsened toward the end of the year, though it’s worth noting that $43,372 was an improvement from a loss of $124,162 per vehicle in Q4 2022.

Guidance

Perhaps most concerning is that Rivian produced 57,232 vehicles in 2023, and only plans to produce 57,000 in 2024. In fact, the company’s Q4 production rate was equal to 70,000 vehicles per year. Therefore, management reduces production!

The company cited economic and geographic challenges, particularly high interest rates, as a reason for scaling back output guidance.

Bottom line

Rivian isn’t expected to break even until 2029. That’s a long way off, and it’s currently burning through capital at a rapid pace. It ended the fourth quarter of 2023 with $9.4bn in cash, but given its burn rate, I’d expect to see it run into liquidity problems towards the end of 2025. This means raising more cash or reducing stock.

Rivian is not my EV choice!