The 1 Number That Could Unlock Rivian Stock's Upside

Everyone wants to find the next Tesla. If only it were that easy, we'd all be retired by now. Tesla was groundbreaking and did what no one thought possible: It made electric vehicles cool. But if you missed the boat on Tesla's rise, there could be another EV stock poised to pop: Rivian (NASDAQ: RIVN).

But here's one number investors should look for in Rivian's upcoming fourth-quarter earnings on Feb. 20 that could potentially unlock this stock's upside.

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Where's the upside?

Tesla has separated itself from most EV makers in the sense it's relatively stable, produces actual profit, and has an intriguing future that could include robotaxis and artificial intelligence (AI) technology. It's an easy story to buy into, and that's largely why the stock trades at a higher price-to-sales (P/S) multiple than its competitors.

TSLA PS Ratio (Annual) data by YCharts.

The graph shows where we can find upside in Rivian. If the company can convince investors it has a real path to profitability, it will generate demand for the stock and close the valuation gap with its competitors. Rivian doesn't need robotaxis, and it doesn't need AI -- what it needs to achieve is positive gross profits during the fourth quarter and for full-year 2025.

Make no mistake: With recent production hiccups and supply disruptions, achieving a positive gross profit will be a challenge, even if management has remained optimistic about its ability to meet this target. To be fair, Rivian has made progress on gross profit, albeit slowly and inconsistently, as you can see in the chart.

Data source: Rivian SEC filings.

Progress for Rivian hasn't been in a straight line, but the fourth quarter could be an inflection point for the company. In fact, while Rivian doesn't expect to be gross profit-positive in every quarter during 2025, it does expect the full year to be positive -- that's a great sign, if achieved.

If Rivian can continue making noticeable improvements on gross profit, it will help convince investors there's a long-term vision with the young EV maker. In fact, a small example of how much this matters can be found during the third quarter, when Rivian missed top- and bottom-line estimates, but its stock price moved higher after the announced results because management stood firm on achieving gross profit during the fourth quarter.

Churning out a positive gross profit should help close the valuation gap on competitors such as Lucid, which Rivian outsells by tens of thousands of vehicles annually.

What's the catch?

While Rivian has immense upside if it were to achieve the P/S valuation its competitors boast. The truth is that it could be a bumpy year for the EV maker's stock price. There are two primary reasons for this: the incoming administration and lack of 2025 catalysts.

The incoming administration has made it very well known it plans to pull back support for the EV industry, even going as far as planning to pull the federal tax credit on EV purchases worth up to $7,500 -- Rivian vehicles only qualified for about half of that, if at all. The uncertainty of the incoming administration is enough to weigh on the EV industry, including Rivian, throughout 2025.

Another hurdle facing Rivian is simply the fact that 2025 is lacking catalysts to push the stock higher. The company plans to launch the R2, R3, and R3X in 2026 -- a development that can't get here fast enough for investors -- but with no launches in 2025, the company's stock could trade alongside the gloomy, even if incorrectly so, narrative surrounding the broader EV industry.

Rivian has immense potential and a very bright future if it can bring costs down and drive toward profitability. The fourth quarter brings us an important first step if it can achieve positive gross profit. It's the one number investors need to focus on more than anything, as it's the key to unlocking some of Rivian's near-term upside.

Should you invest $1,000 in Rivian Automotive right now?

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.