The Overlooked Reason Rivian's R2 Is So Important

For publicly traded companies, it seems like you're only as good as your next product. Instead of "What have you done for me lately?" it's "What are you doing for me next?" That's where investors in Rivian Automotive (NASDAQ: RIVN) are focusing their attention currently -- on the company's next big product, the R2.

Let's cover the basics of why the R2 is so important, but more importantly let's also point out the often overlooked reason the R2 is so critical for Rivian.

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Across the board

Rivian perhaps gave us a glimpse of what's to come when it unleashed the second generation of the R1 vehicles. It made several hardware changes, reduced the number of parts, and focused on cost improvements. The R2 will take the baton, and Rivian has cut out 100 steps from its battery-making process, over 50 components from the body shop, and about 500 parts from its design. The young EV maker has managed to reduce material costs by 50% with the R2.

Another factor that will make the R2 hugely important to Rivian is its price tag. The R2 is expected to start around $45,000, making it far more affordable than the R1 vehicles that start at roughly $76,000. This lower price tag should open the doors to a much larger addressable market for the automaker and significantly boost sales once launched in 2026.

Rivian is currently hard at work to add a designated R2 production line at its Illinois factory. If investors remember, the decision to move initial production of the R2 from Georgia's future factory into Illinois saved roughly $2 billion.

But, in my opinion, the overlooked reason that the R2 is so important to Rivian is because the model will sell overseas, unlike its R1 predecessors. After ramping up production for deliveries in the U.S. market, the R2 will head overseas with plans to launch in Europe along with other global markets. This is a massive step for the company, and if its SUV finds demand in Europe, it could change the narrative on Rivian's near-term delivery potential.

Is Rivian a buy?

I think it's fair to say Rivian has separated itself from most of the EV start-up crowd, but it still faces many of the same risks. 2025 seems poised to be a lackluster year for Rivian and its investors as the company lacks any visible catalysts to drive the stock higher. That said, the company has a lot going for it. It just turned in a positive gross profit during the fourth quarter, the R3 and R3X will follow the R2, its Georgia plant will be pumping out product in 2028, and 95% of the bill of materials for the R2 is already sourced.

Rivian isn't for the faint of heart and will remain highly speculative for some time. It should always remain a small position in any portfolio. But if you're looking for a young company with high upside, Rivian is certainly worth looking into.

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Daniel Miller 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.