With Shares Down Nearly 60%, Is Now the Time to Buy This EV Stock?

When Rivian Automotive (NASDAQ: RIVN) came public, investors were initially excited by its prospects. And then reality set in that building a profitable electric vehicle (EV) company from the ground up might be harder than it seemed. The shares have fallen dramatically from their highs at this point.

But before you rush in thinking that you've found a bargain, it is important to understand the next big milestones for the company.

How bad has it been to own Rivian's stock?

Rivian's shares have fallen roughly 60% from their 52-week highs. That's a really tough number to look at, but the story gets worse when you look back past a single year. Rivian's shares are down a whopping 90%+ from their all-time highs, which came shortly after its initial public offering (IPO) in late 2021.

A person looking at a computer screen with a look of unpleasant surprise.

Step back for one second and think about that. A 90% decline means that Rivian's stock has lost nearly all of its value. If you had invested $1,000 during the IPO, you'd only have around $100 today. Wall Street gets things wrong at times, but declines like that don't happen for no reason. The problem with Rivian is twofold. The hype around electric vehicles is over, and investors aren't impressed with the company's financial performance.

The search for the next Tesla is over

Basically, as electric vehicle pioneer Tesla was inching its way toward a sustainable profit, investors were looking for copycat companies that might produce the same massive stock gains. Rivian, which makes very nice electric trucks, seemed like a good candidate.

To be fair, the company has achieved a lot in a very short period of time, noting that it was able to scale up production materially so that it now makes nearly 60,000 vehicles a year. A lot of hard work went into making that happen.

RIVN

The problem is that in the first quarter of 2024 it lost nearly $39,000 on every vehicle it sold. But there are some caveats with that number. The most important is that management has stopped working to increase production and has, instead, been spending its time working on improving profitability. That required more spending in the near term to improve its production processes. A plant update has been completed at this point, and the company believes it will produce a modest gross profit in the fourth quarter of 2024.

That's the first big step here and one that can't be emphasized enough. If the company can't produce its trucks profitably it doesn't have a future. A gross profit is the next step in the process toward building a self-sustaining business, noting that there are material expenses that show up below gross profit on the income statement (such as research and development and selling, general, and administrative expenses).

That said, the trucks Rivian sells are very expensive. And that's where the next big goal comes in, since the company is looking to launch a lower-priced model. That won't happen for a few more years, however, so don't expect Rivian to break into the black in the near term. This leads to the big takeaway: Only aggressive investors should probably be buying Rivian stock right now even after the massive share price decline.

Execution will be key for Rivian

Rivian has achieved a lot so far and it has an attractive product. But that doesn't mean it has a sustainable business. Getting to that point will require management to continue to execute at a high level, with the first big goal being a gross profit by the end of the year.

After that investors need to track its progress toward launching a lower-priced model to broaden its target market. Most investors will probably be better off waiting for the company's fourth-quarter results before considering the stock. And even then, it might make sense to wait before you buy until Rivian has launched its lower-cost model.

So, all in all, now doesn't look like the time to buy Rivian stock unless you have a very high risk tolerance.

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Reuben Gregg Brewer 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.