Unlocking Rivian’s Hidden Potential
The electric vehicle (EV) market is abuzz with excitement, and investors are on the hunt for the next big thing. While Tesla has set the bar high, Rivian (NASDAQ: RIVN) is poised to make a splash with its upcoming fourth-quarter earnings report on February 20.
A Path to Profitability
Rivian’s key to success lies in convincing investors it has a clear path to profitability. If the company can achieve positive gross profits during the fourth quarter and for full-year 2025, it will generate significant demand for its stock and close the valuation gap with its competitors. This is no easy feat, especially considering recent production hiccups and supply disruptions. However, management remains optimistic about meeting this target.
Gross Profit Progress
Rivian has made slow but steady progress on gross profit, as seen in the chart. While the journey hasn’t been linear, the fourth quarter could be a turning point for the company. In fact, Rivian expects the full year 2025 to be gross profit-positive, even if it doesn’t achieve this in every quarter.
Convincing Investors
If Rivian can continue to make noticeable improvements on gross profit, it will help convince investors of its long-term vision. A small example of this can be seen in the third quarter, when Rivian’s stock price moved higher after announcing results, despite missing top- and bottom-line estimates, due to management’s commitment to achieving gross profit in the fourth quarter.
Valuation Gap
Rivian has immense upside potential if it can achieve the price-to-sales (P/S) valuation of its competitors, such as Lucid. Churning out a positive gross profit will help close this gap, making Rivian a more attractive investment opportunity.
Challenges Ahead
However, Rivian faces two primary challenges in 2025: the incoming administration’s plans to pull back support for the EV industry and the lack of catalysts to push the stock higher. The uncertainty surrounding the federal tax credit on EV purchases and the absence of new launches in 2025 could weigh on the EV industry, including Rivian.
Bright Future Ahead
Despite these challenges, Rivian has immense potential and a bright future if it can bring costs down and drive toward profitability. The fourth quarter brings an important first step in achieving positive gross profit, which is key to unlocking some of Rivian’s near-term upside.
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