California-based electric vehicle (EV) maker Rivian Automotive (NASDAQ:RIVN) recently reported its third-quarter 2024 financial results, revealing a rocky quarter that fell short of Wall Street expectations. With a backdrop of supply chain disruptions and production challenges, Rivian has adjusted its outlook for the year, leaving investors questioning whether Rivian stock is a buy now or if it’s wiser to wait for clearer recovery signals.

Rivian’s Q3 Performance: What Went Wrong?

Earnings and Revenue Miss: Rivian reported a quarterly loss of $1.03 per share, missing the Consensus Estimate of $0.89. Revenue also disappointed, totaling $874 million—down from the expected $970.7 million, representing a 34.6% year-over-year decline. Rivian’s struggles stemmed mainly from supply chain issues affecting production and deliveries, with CEO RJ Scaringe noting the quarter as “challenging.”

Production Slowdown: Supply chain problems significantly affected Rivian’s production, especially with its Enduro motor system, reducing production to 13,157 units from last year’s 16,304. Deliveries similarly dropped, reflecting a competitive market with waning demand for Rivian’s higher-priced models. Given these factors, Rivian cut its annual production forecast from 57,000 to a range of 47,000-49,000 vehicles.

Updated Guidance for 2024: With weaker-than-expected results, Rivian revised its adjusted EBITDA loss forecast to between $2.83 billion and $2.88 billion. Although the company maintained its 2024 delivery forecast of 50,500 to 52,000 vehicles, this slight increase from last year reflects slower-than-expected growth.

Strategic Developments to Watch

Despite Rivian’s rocky Q3, several strategic moves could support its growth trajectory:

1. Partnership with Volkswagen (OTCMKTS:VWAGY): Rivian and Volkswagen have teamed up in a $1 billion joint venture to co-develop EV technology and software. This partnership, with potential for an additional $4 billion investment, could expedite Rivian’s production timeline and enhance its tech base, providing a competitive edge in an increasingly tech-driven market.

2. Low-Cost Models in the Pipeline: Rivian plans to introduce the R2, a midsize SUV expected in 2026 at an approximate price of $45,000. Targeting budget-conscious consumers, Rivian aims for this model to be a “fundamental driver of growth,” according to Scaringe. With anticipated production reaching 155,000 R2 units annually, this expansion may help Rivian diversify its revenue streams and stabilize margins.

3. Battery Supply Deal with LG Energy Solution: Rivian has secured a deal with South Korea’s LG Energy Solution for U.S.-manufactured battery cells for its R2 line. This supply chain stability is crucial in the EV market, where demand for reliable battery sources continues to grow. LG Energy’s partnership with major automakers, including Ford (NYSE:F) and Renault (OTCMKTS:RNLSY), reinforces the strategic importance of this collaboration.

4. Cost-Cutting Initiatives: Rivian is also focused on reducing manufacturing costs, implementing upgrades to streamline production at its Normal, Illinois, facility. These changes are projected to reduce material costs for R1 models by 20% next year. Rivian’s cost-cutting measures extend to the anticipated R2, which should result in 45% lower production costs compared to the R1 line.

Current Valuation and Investor Outlook

Valuation Concerns: Rivian stock has declined 57% year-to-date, underperforming the broader market. Currently trading at a forward sales multiple of 1.86, Rivian’s valuation is slightly above industry averages but below its five-year peak of 3.11, reflecting cautious investor sentiment.

Uncertain Policy Landscape: The recent election results, with Donald Trump as President, add regulatory uncertainty for EV manufacturers. Trump’s stance against EV incentives could impact federal support for companies like Rivian. With the new administration, Rivian’s growth prospects in the U.S. market could face headwinds if incentives diminish.

Positive Signals Amid Uncertainty: Despite challenges, Rivian’s reaffirmation of its goal to achieve positive gross profit by Q4 2024 could signal a turning point. Rivian’s strategic alliances, cost-reduction efforts, and planned R2 model release position it for long-term growth.

Should You Buy Rivian Stock Now?

For potential investors, Rivian stock presents a mix of risk and reward. Strategic partnerships with Volkswagen and LG Energy, along with the R2 model’s market potential, offer reasons for optimism. However, near-term challenges and the potential regulatory impact of Trump’s election victory suggest that caution is warranted.

Existing shareholders may consider holding their positions as Rivian’s strategic moves develop. New investors might wait for tangible signs of operational improvements and a stable regulatory environment before buying Rivian stock. Rivian’s journey is one of promise and potential, but patience may be essential for investors seeking lasting gains.

Featured Image: Megapixl

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