3 Reasons to Buy Rivian Hand Over Fist

Rivian Automotive (NASDAQ: RIVN) has been working like a mad scientist behind the scenes to prepare for the launch of its highly anticipated R2 crossover electric vehicle (EV) in the first half of next year. Despite navigating uncertain waters thanks to changing trade policy, tariffs, and the end of the $7,500 federal EV tax credit, Rivian is fresh off a third quarter that topped estimates. Beyond third-quarter results, however, there are more reasons to be optimistic about the road ahead for Rivian.

Road to profitability

One reason that Rivian's stock popped roughly 36% over the past month before giving back gains was its gross profit during the third quarter. Rivian's third quarter was better received by investors than rival Lucid's which has seen its stock decline about 40% over the past month. Actually, to be fair, while investors reacted strongly to Rivian's $24 million gross profit when Wall Street was expecting tens of millions in losses, Rivian has been making fairly consistent progress since 2023.

Data source: Rivian SEC filings. Image source: Author.

Gross profit is a leading indicator of a company's progress toward profitability, and Rivian's gross profit breaks down into two sections: automotive, and software and services. Both performed well, and while automotive gross profit was negative 130 million, it was still a massive $249 million improvement from the prior year. That improvement combined with software and services gross profit of $154 million powered Rivian's surprise gross profit overall.

Powerful partnership

A huge part of Rivian's software and services gross profit was driven by its partnership with Volkswagen. You'll remember that previously, Volkswagen inked a deal with Rivian to use its electrical architecture in an agreement valued at roughly $5.8 billion that would be paid out as objectives were reached.

One objective is approaching quickly: Volkswagen will pour another $1 billion into Rivian after reaching a technological milestone of successfully testing the joint venture technology in winter testing in one or more vehicles. The good news for investors is that Volkswagen and Rivian plan to begin winter testing by the end of this year, evaluating system performance in intense conditions on Volkswagen's ID Every1 concept vehicle.

Investors were right to be optimistic about Rivian's joint venture with Volkswagen, and it's already paid dividends. Even so, it's possible investors haven't yet grasped how big this deal can be. Consider this: Rivian's software-defined vehicle architecture, known as its SSP platform, is expected to be used on up to 30 million Volkswagen vehicles across multiple brands, price points, and segments by the end of this decade. Rivian and Volkswagen have even designed and developed the platform with the possibility of licensing the technology to third parties, generating incremental revenue.

Product pipeline

Rivian's R2 will be instrumental for the company to build scale, and the vehicle is hitting at a solid price point considering new vehicle average selling prices are hovering around $50,000 in the U.S.; the R2 will slide in with a $45,000 price tag. All indications are that Rivian is well prepared for a smooth launch, and by moving the initial R2 production into its original Illinois factory, the company saved roughly $2.25 billion in capital expenditures.

Rivian's product pipeline: R2, R3, R3X. Image source: Rivian.

Thankfully, investors have a bit more transparency after the R2. Rivian then expects to add the R3 and R3X performance variant to the product list. The R3 will be Rivian's smallest SUV yet in the shape of a taller hatchback, although details are light on vehicle specifics. The R3X will actually enter production first, likely sometime late 2026 or early 2027, with the R3 following -- it's common for automakers to put more profitable trims into production first.

Further down the road come the R4 and R5, which are still in a conceptual stage. They are expected to be a sibling set sharing the same but new platform, and lower in cost than the R2 or R3. Rivian's pipeline is in a good place currently, and the R2 and R3 will play a massive role in the company building scale for profitability.

Is Rivian a buy?

Rivian appears to be in a sound place right now exiting the third quarter with over $7 billion in cash and slightly more in total liquidity, which is plenty to connect the dots to production of the R2. But investors also have to keep in mind that Rivian is an incredibly young business, burning through cash rapidly, trying to get its foot in the door of an ultra-competitive automotive market -- it's a high-risk and speculative stock. Investing in Rivian isn't for everyone, and shouldn't be, but right now everything is well positioned for Rivian to thrive in 2026.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.