Everyone would love to brag to coworkers, friends, and family about finding and investing in the next Tesla. If it were as easily done as said, we’d all be retired and wealthy already.
While it will likely be a very long time before any electric vehicle (EV) stock matches Tesla’s roughly 16,000% stock price increase since its initial public offering (IPO), Rivian Automotive (RIVN -2.36%) has qualities that could make it an extremely successful investment.
1. Manufacturing credibility
Even Tesla CEO Elon Musk noted that manufacturing EVs is “insanely difficult” — and that’s from a guy who also focuses on building rockets. Because manufacturing EVs is difficult, and especially at a time when the industry is seeing increasing competition and options for consumers, Rivian’s recent wins in J.D. Power studies give the company credibility about the quality of its vehicles.
Specifically, in J.D. Power’s U.S. Electric Vehicle Experience Ownership Study, which covers a number of things from battery range, cost of ownership, safety, and quality, among others, Rivian scored extremely well.
In fact, in 2022 Tesla owned the study with its Model 3, Model Y, and Model S, taking the top three spots with the highest satisfaction ratings. The narrative changed in 2023, with Rivian’s R1T ranking highest overall for consumer satisfaction and Tesla’s Model 3 dropping to second place.
Another win for Rivian was that it was awarded the Insurance Institute for Highway Safety’s Top Safety Pick+ for its R1S and R1T, and those were the only large SUV and electric truck, respectively, to achieve those stringent ratings in 2023.
2. Ford exits, Amazon remains
To make a long story short, Ford Motor Company initially invested $500 million in Rivian with plans to partner on a vehicle, and would eventually invest as much as $1.2 billion and own 12% of the company. The day it was announced the two decided to cancel those plans, Rivian stock fell as much as 17%.
As Ford sold off tens of millions of shares, slowly but surely, it created an overhang on Rivian’s stock, but that’s now in the rearview mirror.
Amazon, which also holds a 17% chunk of Rivian thanks to its agreement to buy Rivian electric vans exclusively, seems content to hold on to its shares for now. The two companies are also in negotiations to end the exclusive agreement, which could open the doors for Rivian to sell fleets of its vans to other companies focused on delivery.
We’ll have to see how this shakes out as Amazon could one day end up unloading shares and create another overhang on Rivian’s stock price, but for now these developments seem like a net gain for Rivian as Amazon still intends to buy a total of 100,000 electric vans by 2030.
3. Following Tesla’s lead
One challenge facing EV manufacturers is developing a reliable charging infrastructure. Tesla was a step ahead in building the largest and most reliable chain of fast chargers in the U.S. and also began opening them to non-Tesla vehicles in February.
Rivian is following in Tesla’s footsteps with plans for 600 sites and roughly 3,500 fast chargers over the next few years. Rivian also intends to open these to the public and could begin receiving forms of government funding to help build its charging infrastructure starting in 2024.
Accomplishing this task does two positive things for Rivian: It helps deliver a better consumer experience and also opens the door to turning this infrastructure into a revenue stream long-term. The latter of those two will take years, but its plans put it on the path to becoming a significant player in charging infrastructure.
The need for the charging infrastructure is there, and the potential upside is also there for Rivian, but management will have to balance out the pace of building these sites to make sure it’s financially valuable and feasible.
4. The financials
One of the biggest concerns facing Rivian investors is the company’s monumental cash burn. Rivian recorded a negative free cash flow of $1.8 billion during the first quarter, as it took on more inventory to accelerate production.
On the bright side, many EV start-ups are already facing a cash crunch, and Rivian at least boasts a near $12 billion pile of cash, cash equivalents, and restricted cash — and this figure doesn’t include available liquidity from its revolving-credit facility.
RIVN Total Long Term Debt (Quarterly) data by YCharts.
Further, management made some moves during the first quarter that essentially extended much of its debt maturity beyond the launch of its R2 in 2026. Management is targeting positive gross profit in 2024, which, in combination with accelerating production and a pile of cash, gives the company a runway to prove to investors it can succeed long-term.
Rivian is still a solid option
What Tesla has already accomplished is wildly impressive, and finding the next company to accomplish similar feats won’t be easy. But with Rivian’s proven credibility on vehicle quality, a pile of cash with targets for positive gross profit in the near term, Ford no longer being an overhang on the stock price, and long-term opportunities with its charging infrastructure, Rivian still seems like a solid option for investors willing to take some risk in the growing EV industry.