Rivian Automotive 2Q: Not Bad At All

Summary:

• Rivian Automotive reported a slightly lower loss than expected in Q2, but cash reserves continue to dwindle.
• The company reaffirmed plans to produce 57K electric vehicles, with a valuation still compelling despite cash decline.
• Rivian Automotive needs to implement major cost cuts to improve profitability, but remains a promising investment opportunity.

If there was any takeaway from the second quarter earnings of Rivian Automotive (NASDAQ:RIVN) yesterday it was that it is becoming increasingly imperative for the electric-vehicle company to institute major cost cuts in order to improve its profitability.

The electric-vehicle company reported a slightly lower loss than expected for the second quarter, but Rivian Automotive’s cash reserves continue to dwindle.

I think that Rivian Automotive is overall on a good path, particularly because the company reaffirmed that it plans to produce 57K electric-vehicles. The valuation is still rather compelling, though a continual decline in cash is a risk for investors here.

My Rating History

After Rivian Automotive Inc. (RIVN) entered into a strategic equity partnership with automaker Volkswagen AG (OTCPK:VLKAF) in order to share development costs for electric-vehicles at the end of June, I modified my stock classification from ‘Hold’ to ‘Buy’.

I think that Rivian Automotive’s second quarter results were actually quite good, as the production outlook for 2024 was confirmed, but the electric-vehicle company needs to do more to slash its high operating costs.

Rivian Automotive’s 2Q24 And Ongoing Cost Pressures

Rivian Automotive’s second quarter profit beat estimates: The electric-vehicle company lost $1.13 per share (adjusted) in 2Q24 compared to a Street estimate of a $1.21 per share loss.

While profits came in higher-than-anticipated, Rivian Automotive still lost a boatload of money on an absolute dollar basis. In 2Q24, the electric-vehicle company had a net loss of $1.5 billion that resulted from Rivian Automotive scaling up production of its R1T and R1S as well as newer models, like the R2 and R3, which promise to be more cost effective solutions for electric vehicle buyers. Rivian Automotive’s net losses widened $300 million YoY and the electric-vehicle company now sits on year-to-date losses approaching $3.0 billion.

If anything, the results have shown that Rivian Automotive needs to do tightly control costs which was one reason why the electric-vehicle company partnered up with Volkswagen in June.

As of June 30, 2024, the electric-vehicle company had $5.76 billion in cash on its balance sheet which excludes the value of its short-term investments. Rivian Automotive’s total cash balance (including short-term investments and restricted cash) was $7.87 billion, down $1.5 billion since the end of 2023.

Rivian Automotive affirmed its production outlook for 2024, however, which was a positive surprise, particularly because the market has gotten used to bad news from the electric-vehicle industry in recent quarters.

With the sector suffering headwinds to the demand for electric vehicles even companies like Ford Motors Company (F) have cut back on their shift for EV production at the start of the year.

The reaffirmed guidance also proves that the demand situation for Rivian Automotive at least hasn’t gotten worse which at this point is a net positive for the electric-vehicle company as well. Rivian Automotive continues to anticipate a total annual production volume of 57,000 electric-vehicles.

Rivian Automotive Is Still Cheap

Rivian Automotive is quite cheap, from a cash value perspective. The electric-vehicle company has a total market value of $13.6 billion of which, as I explained previous, $7.9 billion was cash and short-term investments. This means that Rivian Automotive’s market value consists to 58% out of cash, creating a serious margin of safety for investors.

From a sales perspective, Rivian Automotive is cheap, too. The market presently models $6.51 billion in sales, implying a YoY growth rate of 34%. There is a risk here that Rivian Automotive may not fully achieve Street estimates next year as there are still demand headwinds in the electric-vehicle market.

Based on the present consensus estimate for 2025, Rivian Automotive’s stock is priced at 2.1x sales, which is a low sales multiple for the EV company which just last year traded at twice this multiple.

I think that since Rivian Automotive reaffirmed its outlook and there is a margin of safety embedded here, due to a high percentage of cash available to the electric-vehicle company, the risk/reward relationship is still quite favorable.

Lucid Motors (LCID), for instance, a much smaller peer in the EV industry, is selling for 3.9x next year’s sales and Lucid Motors doesn’t have anywhere near as good a balance sheet as Rivian Automotive.

Tesla Inc. (TSLA), the world’s largest electric-vehicle company, sells for a 5.6x leading sales multiple. Tesla, as opposed to Rivian Automotive, has been around for far longer and is already producing profits in the billions on an annual basis.

Though Tesla is poised to remain the market leader for a long time, Rivian Automotive has a unique change to become a leader in the market for affordable electric SUVs.

Why The Investment Thesis Might Not Work Out

Rivian Automotive is not profitable and not going to be in the near-future. This implies that the profit outlook in the short-term could substantially deteriorate, particularly in the event that the electric-vehicle market continues to cool down in terms of demand.

Though Rivian Automotive is burning through quite a bit of cash, the joint venture with Volkswagen Group and the considerable cash position of $7.9 billion make a bankruptcy outcome highly unlikely.

My Conclusion

Rivian Automotive reaffirmed its full year production target of 57,000 electric-vehicles. The second quarter was pretty uneventful otherwise as the company already announced its Volkswagen Group partnership in June that it poised to see the inflow of $5.0 billion in total and which should take pressure off of Rivian Automotive’s operating expenditures.

With that said, though, Rivian Automotive’s multiple might remain under pressure until the company improves its production economics and reports lower operating expenses.

I think the electric-vehicle company can remain a promising investment if Rivian Automotive gets its cost structure under control and reports successively lower net losses.

From a valuation angle, I see Rivian Automotive as a ‘Buy’ in terms of both its cash value as well as its sales multiple.

I also don’t think that the second quarter loss particularly changed the investment or operating outlook for Rivian Automotive. Buy.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of RIVN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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