Rivian(NASDAQ: RIVN) hasn’t had the best year in 2024. The stock has lost around half its value year to date as of this writing. But it wasn’t because the company didn’t try. In fact, the problems are more likely growing pains than anything else, given that the upstart electric vehicle (EV) company is focused squarely on reaching profitability as soon as possible. But investors need to tread cautiously — buying Rivian comes with material risks. However, if Tesla(NASDAQ: TSLA) is any indication, there is material upside potential here, too.
Tesla shares are up around 1,500% over the past five years. That is an incredible advance in a very short period of time. But there was a lot that had to be done before Tesla’s business was capable of turning a profit. In fact, Tesla suffered through years of losses building out its electric vehicle business before it was profitable, a transition that occurred just about five years ago. However, that really isn’t shocking at all.
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Image source: Rivian.
When Tesla started out, it made a small number of high-end electric vehicles. It was, basically, trying to build out its manufacturing capabilities. It wasn’t until the company had managed that feat that it could make the shift toward a profit focus. Tesla is a complicated business run by a polarizing figure in Elon Musk, so it isn’t a one-to-one comparison with Rivian. But, in many ways, Rivian is moving down a very similar path, business-wise.
Rivian started out by creating electric vehicle technology and then moved on to building a manufacturing facility for high-end trucks. Now it’s working on its profitability, largely by focusing on reducing its production costs. This year started out fairly well, with a goal of matching 2023 production levels despite a plant upgrade that would allow Rivian to post a modest gross profit in the fourth quarter of 2024. A modest gross profit is still the big goal, but the production target slipped because of supply constraints with key parts.
That said, Rivian also expanded its relationship with Volkswagen, which will provide it with additional capital. So there’s more leeway for delays and bottlenecks now then there would have been when 2024 got underway. Rivian is still just an upstart company, building its business from scratch, so it really isn’t shocking that it would encounter some problems. That it continues to work toward its goals and has found the capital to support that effort is probably more important than what likely amounts to mere delays in the timing of some of its goals.
Here’s where things get far more complicated with the Tesla/Rivian comparison. Investors in Tesla have, clearly, made out very well. The huge gains in Tesla’s stock price have probably set more than a few up for life. But Rivian isn’t Tesla, even if it is following a similar playbook with regard to developing its business (for example, starting at the high end of the market and then working its way down into more affordable products).
Indeed, Tesla was the first stand-alone EV maker, and it basically changed the auto industry by proving that EVs were a viable product offering. Rivian didn’t really come along until Tesla had blazed a trail for it to follow. The problem is that it isn’t only Rivian that has gone down the path Tesla cleared. Just about every major automaker is now making electric vehicles, too. Competition is much more fierce in the EV sector than it was when Tesla started its business. As an example, Rivian’s trucks have to compete with an electric version of the most popular truck in America, the Ford F-150.
So there’s more to consider with Rivian than simply whether or not it can create a profitable business. Investors also need to consider whether or not it can compete in a now fairly crowded EV playing field. The combination of those two issues is what will determine just how much upside there is for Rivian’s stock. Given the Volkswagen partnership, it seems highly likely that Rivian will eventually get into the black (a gross profit is a good first step, but it isn’t the same as generating positive earnings).
However, there are plenty of profitable companies that are middling investments because they don’t have particularly impressive growth opportunities ahead of them. It’s probably too soon to know if that’s the fate Rivian will face or if, like Tesla, turning a profit will be just one more step it takes in an exciting long-term growth story. If you believe there’s an attractive long-term growth story here, it would probably be worth adding Rivian to your portfolio. If you aren’t quite certain of that future, which is in no way clearly visible yet, you’ll probably want to tread carefully.
It is most certainly an exciting time for Rivian as it continues to move its business forward. But expecting it to set you up for life, just like an early investment in Tesla has for many investors, is probably taking things a step too far. The auto industry has changed dramatically since Tesla started its business, and Rivian still has a lot of work to do before it posts positive earnings, as Tesla now does.
Rivian remains a stock that’s most appropriate for aggressive investors. Just go in knowing that it could still fall short of the huge upside opportunity that many investors may think exists because of the path that Tesla and its stock traveled.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
