3 Reasons to Buy Rivian Stock Before It's Too Late

Rivian's (NASDAQ: RIVN) stock has lost an eye-popping 91% of its value since hitting public markets in late 2021. And while this crash has been punishing for its early backers, it creates an opportunity for new investors to get in on the ground floor of a potential turnaround opportunity.

Nothing is guaranteed in financial markets. That said, the stars seem to be aligning for this struggling electric vehicle (EV) company as a combination of rising energy prices and diversification efforts promises to shake it out of its slump. Let's dig deeper into the three top reasons why it might be time for investors to give Rivian stock a closer look.

Image source: Getty Images.

1. Rising energy prices are good for the EV industry

In late February, the U.S. and Israel began strikes on Iran in a move that has severely disrupted the global oil market. Iran itself accounts for around 4% of the world's production. But more importantly, the conflict has largely blocked off the Strait of Hormuz, which is responsible for the transport of around 20% of global petroleum consumption.

Electric vehicles give consumers a way to hedge against volatility in oil prices. So the crisis could spark near-term demand for cars from companies like Rivian. And this could evolve into a longer-term trend for the industry if the crisis drags on for additional months or even years.

For now, Rivian's relatively expensive offerings put it outside the range of the most budget-conscious consumers who will be most worried about rising fuel costs. However, the company is pivoting to the mass market with a new mid-size SUV called the R2, with an expected MSRP below $60,000 when it launches later this year or in early 2027.

2. Rivian management is promoting diversification

Cheaper vehicle offerings will boost Rivian's sales volumes, but they won't necessarily improve margins. The good news is that the company's pivot to software and services could help alleviate this concern.

In late 2024, Rivian launched a partnership with German automotive giant Volkswagen to work on software and internal vehicle electronics. On top of getting up to $5.8 billion in investment capital, the deal will allow Rivian to share parts across a wider number of vehicles, improve its economies of scale, and potentially bring down production costs.

Furthermore, Rivian's Chief Software Officer Wassym Bensaid says other automakers are already approaching the joint venture, looking to incorporate its architectures into their vehicles. This trend speaks to the competitiveness of Rivian's technology compared to the alternatives. And Reuters reports that its systems require fewer electronic control units and wiring, helping to simplify the manufacturing process and reduce weight.

Rivian saw its software and service revenue roughly double year over year to $447 million. While this was still just 35% of total sales for the period, it is shaping up to be a major growth driver for the company.

3. Rivian's challenges are manageable

Despite all these exciting growth drivers, Rivian isn't out of the woods yet. Fourth-quarter earnings show how complex the situation is, with revenue actually declining by 26% year over year to $1.28 billion. The company is also struggling to establish a clear pathway to profitability, with operating losses rising 26% from the prior year period to $833 million.

That said, this looks like a temporary setback instead of a longer-term negative trend. Management claims that the fourth-quarter weakness was mainly due to demand pulling forward to the third quarter. And this makes sense, considering consumers were rushing to buy EVs ahead of the Trump administration's removal of the $7,500 tax credit for purchases in October.

Demand looks poised to rebound in 2026, while catalysts like software and services and new model releases promise to help the company return to a long-term growth trajectory. Shares look like a buy.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.