Stocks to sell

Rivian (RIVN) Stock Warning! Avoid the Stock After Disappointing Earnings Results

Earnings season is still underway, and companies like Rivian (NASDAQ:RIVN) may not be getting the attention they deserve. Indeed, following the incredible results put forward by tech giants such as Nvidia (NASDAQ:NVDA), the bar has clearly been raised across the board. In the EV sector, investors want to see outsized growth, with each earnings report not only scrutinzed for past results but for future potential. This RIVN stock analysis will shed light on the company’s potential.

On this basis, Rivian’s recent report was certainly underwhelming. The company appears to be on the right track, with revenue exceeding the company’s costs, but profitability may still be years away. Recent setbacks for Rivian, given the company’s EV development roadmap in comparison to the expected growth of the sector, provide an uncertain backdrop for long-term investors to buy into.

Let’s dive into whether the recent 25% plunge following Rivian’s earnings provides a buying opportunity, or signals investors should steer clear of this name for now.

Disappointing Earnings

It’s not every day you see a multi-billion dollar market cap company lose 25% in a given day. Unfortunately for investors in RIVN stock, that’s precisely what we saw this week. This move was directly tied to the company’s Q4 2023 earnings report, which left much to be desired.

The company reported $1.3 billion in revenue for the quarter, driven by 13,972 deliveries. Rivian’s total revenue came in at $4.4 billion for 2023, a 167% year-over-year increase. Unfortunately, gross operating losses continued to remain high at $606 million, reflecting a loss of more than $43,000 per vehicle sold. This is a key metric investors were hoping to see some improvement on, but there’s little to show for the company’s efforts. This is a key part of my RIVN stock analysis.

Cost cutting will remain a key focus for Rivian, as the company looks to achieve profitability sooner than later. Thus, it should be no surprise to investors to see another round of layoffs announced following these results (more on that later).

Deliveries are increasing, but gross margins remain stunted due to the high costs of ramping up production. Until Rivian can reach viable scale (it’s the fifth best-selling EV brand in the U.S., nonetheless), this is a stock that will likely continue to be under pressure.

Layoffs Will Be Happening

Rivian’s CEO, RJ Scaringe, left employees uncertain about their roles by announcing a 10% salaried staff cut on Wednesday. Staff were informed they’d learn their fate Thursday morning, yet news of the layoffs surfaced Wednesday afternoon.

The email acknowledged the difficulty of the wait and aimed for a considerate process spanning different time zones. Without specifying numbers, it’s likely this round of layoffs will affect more than 1,000 employees, given the company’s most recent employee count coming in at 16,700. However, it’s unclear what percentage of Rivian’s staff are salaried versus hourly workers, which will be key in determining who will be laid off.

The carmaker’s approach of delaying staff notifications overnight appears to be relatively uncommon. Tech companies have employed various methods to inform staff of role changes. That said, one thing is certain – Rivian’s third layoff in two years reflects industry challenges amid EV market shifts.

R2 Looks Promising

Rivian aims to broaden its reach with the R2 electric SUV, targeting a $48,000 price point, ideal for gas vehicle switchers. CEO RJ Scaringe recently highlighted the company’s R2’s competitiveness against Tesla’s Model Y, envisioning a move toward the mass market. Thus, it’s not all bad news coming out of this earnings report, if this vehicle can be mass produced at a profit.

Best Avoid RIVN Now

After refraining from price cuts last year, Rivian is making a move toward lower-priced vehicle options. This gamble, in chasing market share and foregoing near-term profit targets, has some investors looking for other EV stocks in this market. Indeed, it’s now a competitive sector, and one that’s putting pressure on many EV makers’ balance sheets, given ongoing price wars.

Rivian’s rather muted outlook, for only 10%-15% delivery growth this quarter (with a diminishing order book tied to cancellations) has led investors to seek out other options in this space. I can’t blame market participants for doing so. It’s a tough market and could become much tougher in the coming years.

While Rivian may certainly look much more attractive after its recent price drop, it’s also not a stock I’d consider buying here. Until the company can prove it’s on a path to profitability, RIVN stock will remain off my watch list for the time being. This concludes my RIVN stock analysis.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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