Is Rivian Stock a Millionaire Maker?

Key Points

• Rivian's stock is down 92% since going public.

• The company is working to bring a cheaper vehicle to market and expand its electric vehicle manufacturing capacity.

• The stock might be cheap, but Rivian is an incredibly risky business to invest in today.

• 10 stocks we like better than Rivian Automotive ›

The future looked bright for electric vehicle (EV) makers such as Rivian Automotive (NASDAQ: RIVN) in 2021. After debuting on the public markets through a massive initial public offering (IPO) the stock had a market cap of over $100 billion even though the business wasn't generating any revenue. Since then, any shareholder in Rivian has experienced a lot of pain.

Shares of Rivian stock are down 92% from all-time highs set in 2021, severely underperforming the market indices over that span. Now, it has a market cap of just $16 billion but is still working diligently to expand its footprint in the premium EV space, build a vertically integrated hardware-software model, and is partnering with automotive peers like Volkswagen to get more investment capital.

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At a severely discounted price to its IPO, is Rivian stock ready to be a millionaire maker for your portfolio? Let's take a closer look and find out.

Vertically integrated manufacturing in America

Like the storied Tesla brand, Rivian is aiming to reinvigorate automotive manufacturing in the United States with a vertically integrated selling model. It has a factory in Illinois where it currently builds the premium R1 trucks and SUVs as well as commercial delivery vans. Instead of selling through third-party dealers, Rivian is building its own distribution system with showrooms across the country. It has also built its own electric motor system and vehicle software -- including autonomous driving technology -- that it hopes will deliver a superior driving experience.

Right now, Rivian is only producing around 50,000 vehicles a year with one consumer model called the R1. These are expensive vehicles that only a small portion of the population can afford, but with rave reviews from those who have bought. It looks like Rivian's integrated product model is working like a charm for its initial customer base.

In order to sell more vehicles, Rivian is building a cheaper SUV called the R2, which is set to debut in 2026. The vehicle is projected to cost in between $45,000 and $55,000, making it a much more affordable price point for the average EV shopper. It will add 155,000 annual units to its manufacturing capacity, bring its total productive potential above 200,000. Bringing the R2 to market will be vital for Rivian to achieve profitability. Except for high-end luxury players, manufacturing scale is necessary for an automotive business to generate a profit.

Can the company achieve positive cash flow?

Rivian's factory build-out and vertically integrated selling model is expensive, which is evident when looking at its trailing financial performance. Free cash flow has been negative every year since Rivian went public, hitting a low of over $6 billion in cash burned in 2023. However, through cost-cutting measures, Rivian has now greatly improved its cash burn to just over $1 billion a year. This figure may fluctuate as R2 productions scales up, but with $7.5 billion in cash and equivalents on the balance sheet, the company can operate in the red for many years if necessary.

The company has many partners to help fund this manufacturing expansion, which will not stop with the R2 in 2026. Volkswagen Group has invested in Rivian and formed a joint venture for both automotive hardware and software development. The company is planning to invest $2.5 billion more into Rivian in the coming years based on joint venture milestones.

The Department of Energy has a proposed $6.6 billion loan associated with a Georgia factory, although it is unclear how secure this loan is depending on the political environment for electric vehicles. One of the largest companies in the world -- Amazon -- has a 15% ownership stake in Rivian and a huge order for commercial electric vans. It could easily invest more in Rivian to help it expand manufacturing capabilities.

All said, Rivian has lost a lot of money investing in automotive manufacturing but still has a ton of cash on its balance sheet and huge partners that can make more investments to fund its ambitions.

RIVN Free Cash Flow data by YCharts

The future for Rivian stock

This year, Rivian is expecting to deliver in between 40,000 and 60,000 vehicles. It has generated $5.1 billion in revenue over the last 12 months, which could grow to $20 billion a year once the R2 factory starts spitting out units, then climbing even higher years down the line with other factories such as the one in Georgia coming online. Between 15 million and 17.5 million vehicles are sold in the United States every year, with EVs steadily taking market share from combustion vehicles. Rivian is one of the only remaining EV brands from the 2021 mania, giving it a huge opportunity to tackle the United States automotive market as it expands its factory footprint.

If revenue can grow to $20 billion and Rivian can eke out a 5% bottom-line profit margin (the car-making business has a low margin), then annual net income will be $1 billion within a year or two, giving the stock a price-to-earnings ratio (P/E) of 16 based on the stock's current market cap of $16 billion. A P/E of 16 for a business with the growth potential of Rivian looks cheap, especially if it can grow its revenue even higher than my $20 billion estimate.

That doesn't mean the stock is a guaranteed millionaire-maker, though. The automotive business is extremely tough and hyper-competitive, with bankruptcies a common occurrence. Rivian may never generate a profit, especially if the car market goes into a downturn, adding a level of risk for this stock that has already burned investors in the last five years. For this reason, Rivian is a bad bet to make in your portfolio today.

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Brett Schafer has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.