Here’s why I’m staying well clear of Rivian stock

Electric vehicles have excited investors for years now, but can be hit or miss. Here’s why Gordon Best will be avoiding Rivian stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Illustration of flames over a black background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The electric vehicle (EV) revolution is in full swing. Rivian (NASDAQ: RIVN) has emerged as a player with exciting products and bold ambitions. However, despite the potential of the company, I feel there are several compelling reasons why Rivian stock might be a risky investment.

Burning cash

A major concern I have is its lack of profitability. As a young company still in its growth phase, Rivian is burning through cash to ramp up production and develop new vehicles. While this cash burn is somewhat expected in the EV startup world, the sheer speed at which the firm is depleting its reserves is alarming.

Reports indicate a decline from nearly $20bn in late 2021 to under $8bn today. This trend raises questions about whether the company can continue over the long run without additional funding.

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

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rivian Automotive made the list?

See the 6 stocks

Even more concerningly, losses have been accelerating in recent years, increasing at 35% annually.

Competition

The EV market is becoming increasingly crowded. Established automakers like Ford and General Motors are pouring resources into developing their own electric vehicles. Additionally, Tesla continues to dominate the market share, making it difficult for new entrants to gain a foothold.

These newcomers face an uphill battle in convincing consumers to choose its brand over more established players with proven track records, especially in less established regions globally.

Let’s take a look at the numbers, firstly the price-to-sales (P/S) ratio, since the company is unprofitable. The ratio of 2.8 is much higher than the calculated value of 0.3 times. Even with growth expectations of 33% over the coming years, I fear that the market isn’t convinced. With the share price down by over 50% in 2024 alone, I find it hard to disagree.

Created with Highcharts 11.4.3Rivian Automotive PriceZoom1M3M6MYTD1Y5Y10YALL1 May 201931 May 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

The company has ambitious plans for the future, with its R1T pickup truck and R1S SUV already generating interest. As many investors in the EV space know, translating those plans into reality is a different story. Manufacturing delays and production hiccups could severely hamper the ability to meet targets and emerge as a reliable brand.

In a period of economic uncertainty and high interest rates, investors should be wary of the inherent risk associated with a young company navigating the complexities of large-scale auto production.

As Tesla CEO Elon Musk has noted many times in recent years, high interest rates and potential economic downturns could dampen consumer enthusiasm for high-priced electric vehicles. In this environment, government incentives for EVs could be scaled back or eliminated, making it even more difficult for newer players to establish themselves.

Friends in high places

Rivian boasts a strong partnership with Amazon, which has pre-ordered a significant number of delivery vans. However, this also creates a situation where success is somewhat tethered to the fortunes of another company. If Amazon changes its delivery strategy or decides to source vans elsewhere, it could be a major blow to Rivian’s production volume and revenue stream.

The bottom line

Rivian holds the potential to be a major player in the EV landscape. The company’s innovative vehicles and strong partnerships are impressive. However, for me, the current picture is far from rosy.

The combination of unproven profitability, a crowded market, execution risk, and economic uncertainty makes this a gamble at best. I’ll be staying well clear of Rivian stock for now.

But what does the head of The Motley Fool’s investing team think?

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

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rivian Automotive made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

How £100 a month could turn into £6,500 a year in passive income

With enough time, a 6.5% annual return can turn £100 per month into something that yields £6,500 per year in…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Is now a good time to start investing in the stock market?

Predicting what the stock market will do in the next few weeks and months is nearly impossible. But over the…

Read more »

Close-up as a woman counts out modern British banknotes.
Investing Articles

£5,000 invested in Legal & General shares 10 years ago would have generated passive income of…

Legal & General shares are one of the highest-yielding in the FTSE 100. How much passive income could have been…

Read more »

Passive income text with pin graph chart on business table
Dividend Shares

3 world-class dividend stocks to consider for passive income

These three stocks could potentially help investors create a stable – and growing – stream of passive income in the…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Diageo’s share price plunges 43% in 2 years! Time to consider buying the dip?

With sales falling, the Diageo share price is being hit hard. But with the shares now trading near 52-week lows,…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

The GGP share price skyrockets 100%+ in 2025 – Could this be the breakout stock of the year?

With the GGP share price more than doubling in four months, can Greatland Gold continue to thrive throughout the rest…

Read more »

Illustration of flames over a black background
Investing Articles

JD Sports’ share price soars 27% in just 3 weeks – is this the hottest stock to consider buying now?

The JD Sports share price is rising rapidly as management steers the business back on track. Can this upward momentum…

Read more »

Nottingham Giltbrook Exterior
Investing Articles

The Marks and Spencer share price stumbles on a cyberattack! Is it time to panic?

A disruptive cybersecurity breach has brought down Marks & Spencer’s online store, sending the share price tumbling. Should investors be…

Read more »