Rivian Shares Skyrocket. Is It Too Late to Buy the Stock?

The share price of Rivian Automotive (NASDAQ: RIVN) skyrocketed after the electric vehicle (EV) maker returned to being gross-margin positive and offered upbeat commentary about the upcoming launch of its R2 SUV next year. The stock is now up nearly 50% over the past year after the surge.

Let's take a closer look at the company's results and prospects to see whether or not it's too late to buy the stock.

The R2 remains in focus

The key to Rivian becoming a profitable company that generates free cash flow largely centers around the launch of its new, lower-priced R2 next year. Its current R1 SUV can cost upward of $100,000 when fully loaded, and is thus more in the niche luxury EV SUV market. With a starting price around $45,000, the R2 will appeal to a much broader audience given its more affordable price.

Image source: Getty Images.

That's only half the story, though. The R2 is also expected to have much better gross margins despite its lower price tag. The reason is that it will have much lower material costs than the R2, which are already contractually locked in with suppliers, and volumes are expected to be much higher, so the cost of building them will also be cheaper per vehicle, because fixed costs get absorbed across more units.

The R2 is expected to drive significant revenue growth for the company starting next year. Management aims to begin manufacturing R2 SUVs for validation by year-end, followed by building them for sale in the first half of next year, before ramping up production in the second half of 2026. In the past, the company has talked about reaching breakeven on earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2027.

In the third quarter, revenue soared by 78% year over year to $1.6 billion despite fewer vehicle deliveries. The company produced 10,720 vehicles and delivered 13,201 in the quarter, compared to 13,157 vehicles produced and 10,018 delivered a year earlier.

Automobile revenue climbed by 47% year over year to $1.14 billion, while software and service revenue skyrocketed 324% from $98 million to $416 million. About half of its software and service revenue came from its joint venture with Volkswagen.

Importantly, the company was able to return to positive gross margins, posting a gross profit of $24 million. Rivian has worked hard to revamp its manufacturing and lower material costs, with its biggest breakthrough switching to a zonal architecture system that reduces the number of electrical components and wiring needed for a vehicle.

The company was able to shrink its adjusted EBITDA loss from $757 billion a year earlier to $602 million. It also reduced its free cash outflows to $421 million from $1.15 billion a year ago.

Management narrowed its delivery forecast from between 40,000 and 46,000 units to a new range of 41,500 to 43,500. It continues to expect an adjusted EBITDA loss of between $2 billion to $2.25 billion.

The company intends to finish a new factory in Georgia that will be able to make 400,000 vehicles a year. It expects it to come on line in late 2028 and be able to manufacture its planned future R3 crossover vehicle.

Is it too late to buy the stock?

Rivian has been doing a lot of good things, getting to gross margin positive and setting itself up for future success with the R2. Meanwhile, partnerships with Volkswagen and Amazon, together with a large government loan, give a long runway of cash to scale up production.

It also faces some headwinds, though, both with tariffs and the end of the $7,500 federal EV tax credit. But management said the impact of tariffs is down to only a few hundred dollars per vehicle, so it is dealing with the situation well.

There was a pull-forward in demand due to the end of the EV tax credits, and it doesn't expect to benefit from the sale of regulatory tax credits next year, which are pure profit.

Rivian remains a high risk/high reward stock, and after the surge in price following its earnings report, I would probably pump the brakes on the stock for the moment and wait for it to cool down before adding shares here.

Geoffrey Seiler has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.