Is Rivian the Best Electric Vehicle (EV) Stock for You?
One possible reason for the slowdown in electric vehicle (EV) sales growth in 2024 is a lineup of options that has been growing stale. Industry leader Tesla recently launched its unique Cybertruck, but it hasn't made any major upgrades or design changes to the top-selling Model Y or more affordable Model 3.
Rivian Automotive (NASDAQ: RIVN) may be taking a hint from that situation and is being more aggressive with offering customers new options. Even after announcing its plans for a 2026 next-generation R2 vehicle platform, Rivian revamped its lineup of R1 vehicles. Now the company has a large new capital injection.
With the stock still trading down by more than 30% year to date, now may well turn out to be an opportune time to buy shares.
Big investor teams up with Rivian
One advantage for Rivian as a start-up was its relationship with Amazon. The e-commerce giant was an early investor but also has an existing 100,000-vehicle order for Rivian's electric delivery vans. Those vans provide a nice baseline for its production lines and are currently bringing in about 20% of the company's revenue.
Now the company also has a new investment agreement with Volkswagen (OTC: VWAGY). The global auto giant will initially invest $1 billion with Rivian in the form of a convertible note with a favorable yield of 4.75%. But that's just the beginning of a new partnership between the two automakers.
Volkswagen has agreed to invest a total of up to $5 billion with Rivian through 2026. The balance includes $2 billion invested in common stock. Another $2 billion will be used for a joint venture (JV) to develop next-generation software platforms and electrical architecture to be used in both companies' EVs.
front view of white Rivian SUV.
This is big news for Rivian investors because the company has been using up its cash as it ramps up production and sales and prepares for its new R2 models. The company had about $7.9 billion in cash and equivalents as of March 31. But that was down from nearly $12 billion one year earlier. That's led to a renewed focus on cost savings. Rivian reportedly cut 35% out of material cost for its van production and achieved a similar savings rate for its other production lines, according to founder and CEO R.J. Scaringe.
Should you buy Rivian now?
A bet on Rivian at this point is a bet on the next-generation R2 and R3 models. Those platforms will have lower price points and should appeal to a wider range of potential EV buyers. Rivian should have already broadened interest in its products by providing 2024 Rivian owners access to Tesla's Supercharger network in the U.S. and Canada.
Whether to own shares depends on one's own risk tolerance. The stock can be volatile, as exemplified by the pop it experienced when the Volkswagen investment was announced. But the risk has decreased at least somewhat with this capital injection. The company has already said it expects to achieve a positive gross profit in the fourth quarter of this year. The deal also validated Rivian's vertically integrated EV technology.
Rivian now has several advantages over other EV start-ups and also has differentiated itself from industry leader Tesla. Not only does the Amazon delivery van order help sustain its order book, but that agreement is no longer exclusive. When Rivian has additional production capacity, it will be able to market its electric vans to other customers as well.
Now its Volkswagen partnership brings the potential for new cost-saving EV technologies. And the deal likely takes another capital raise off the table for at least the next two years.
Investors who think EVs will continue to increase in popularity should look at Rivian as a buying opportunity, even now that the stock has surged from the Volkswagen news. There is still a non-zero chance that Rivian will fail.
Should you invest $1,000 in Rivian Automotive right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Howard Smith has positions in Amazon, Rivian Automotive, and Tesla. The Motley Fool has positions in and recommends Amazon, Tesla, and Volkswagen Ag. The Motley Fool has a disclosure policy.