Rivian bets on R2 and autonomy as stock marks five years of decline

Rivian CEO RJ Scaringe called 2027 an “inflection year” for the electric vehicle maker as it marks five years since its initial public offering, a period in which the stock has fallen more than 80%, CNBC reported.

“2027 is really an inflection year for us,” Scaringe told CNBC in an exclusive interview. “I’m excited to start to really show what we believe so fully, the potential of the business.”

The optimism is a sharp contrast to the stock chart. Rivian debuted on the Nasdaq at $78 a share on Nov. 10, 2021, with Scaringe ringing the opening bell from the company’s factory in Normal, Illinois. The stock closed Monday around $14, down more than 80% from the IPO price and down nearly 30% this year alone. The company is worth a fraction of the $66 billion valuation it commanded on its first day of trading.

The case for the inflection rests on the R2. The midsize SUV, with an entry-level price of about $45,000, became Rivian’s best-selling vehicle in the third quarter, outselling both the R1 flagship products and the commercial delivery van. Rivian delivered a record 19,248 vehicles in the quarter, up 46% from a year earlier, exceeding Wall Street’s expectations. The automotive cost of goods sold per vehicle improved by more than $12,000 quarter over quarter, helped by the higher R2 mix and better use of factory capacity.

“That’s going to define the business,” Scaringe said of the R2. “The path to profitability, the path to very significant growth in revenue is all built around R2, and then some of the variants that come following R2.”

The financial picture is mixed. Rivian generated $176 million of consolidated gross profit in the third quarter, but the automotive business posted an $80 million gross loss. The software and services unit generated $256 million of gross profit at a 42% margin. The company is losing money on every vehicle it builds but making money on the software attached to them. The question is whether the software can scale fast enough to cover the hardware losses before the cash runs out.

Rivian had $5.5 billion in cash, cash equivalents and short-term investments at the end of the third quarter. Total available liquidity is about $13 billion when factoring in credit lines, partnerships with Volkswagen and Uber, and a $4.5 billion Department of Energy loan for a new factory in Georgia. The Georgia plant, still under construction, is expected to be capable of producing 300,000 vehicles annually once the initial phase is completed in late 2028. The existing Illinois factory can produce 215,000 vehicles a year.

Scaringe is also betting on autonomy. Rivian plans to release “point-to-point” driving capabilities in the coming weeks and months, first to employees and then to customers. The feature allows vehicles to drive themselves from destination to destination with the driver monitoring in case of problems. Tesla is the only automaker currently offering similar features. Scaringe said Rivian plans to not only match Tesla but exceed it by using multiple sensor types that allow the vehicle to see better in inclement weather.

The autonomy push is tied to a partnership with Uber. Rivian plans to deploy autonomous vehicles on the ride-hailing platform by 2028. Scaringe said he believes autonomy will go from a purchase consideration for 10% of buyers to a top-two consideration for the vast majority within a few years. Rivian will share more details at an investor technology event on Dec. 9.

Wall Street is skeptical. Deutsche Bank analyst Edison Yu said in an Oct. 30 note that Rivian’s R2 launch is showing encouraging demand, but the investment requirements are rising. “The notion of a multi-year (even if credible) path to cash flow breakeven will be less attractive to investors,” Yu wrote. TD Cowen analyst Itay Michaeli was more positive, saying the Dec. 9 event could set a path for autonomous vehicle features driving incremental demand and higher software revenue in 2027. The stock is rated overweight with a $17.70 target price, according to FactSet, a roughly 26% increase from Monday’s close.

Rivian’s survival is notable in itself. Most of the EV startups that went public during the 2021 boom no longer exist. Fisker filed for bankruptcy. Lordstown collapsed. Nikola imploded. Rivian is the last one standing, and it is standing because Amazon backed it with an order for 100,000 delivery vans and because the R2 is selling. Whether that is enough to justify the IPO valuation, or anything close to it, is the question Scaringe has to answer in 2027.

What I think

Scaringe is making the right bet with the R2. The $45,000 price point is where the EV market actually lives. Everything above $60,000 is a niche, and Rivian’s R1 trucks and SUVs, however well engineered, are priced out of the volume market. The R2 is the first Rivian that a normal person can consider buying, and the sales numbers confirm it. The 46% year-over-year delivery growth and the $12,000 cost improvement per vehicle are real. The R2 is working.

The autonomy bet is less convincing. Scaringe says Rivian will not just match Tesla but exceed it. Every automaker says this. None of them have. Tesla has a multi-year head start, millions of miles of real-world data, and a willingness to ship features that are not ready and fix them later. Rivian is starting from behind and plans to be more careful, which means slower. The Uber partnership by 2028 is a promise, not a product. The Dec. 9 event will tell us whether Rivian has something real or another demo video.

The financial question is the one that matters. Rivian is losing $80 million a quarter on its automotive business and making $256 million on software. The software margin is impressive, but the company is spending billions on the Georgia factory and autonomy development. Deutsche Bank’s Edison Yu is right that a multi-year path to cash flow breakeven is not attractive to investors who have been waiting five years already. Scaringe says Rivian will be “opportunistic” about raising more capital. That is CEO-speak for “we will dilute you if we have to.” The $13 billion in liquidity sounds like a lot, but Rivian has been burning through cash since the IPO, and the Georgia factory will not be cheap.

The stock is not going back to $78. That valuation was a product of a moment when investors thought every EV startup would be the next Tesla. That moment is over. But Rivian is alive, it is growing, and it has a product that people are buying. If Scaringe can get the automotive business to gross profit in 2027, the stock has room to run from $14. If he cannot, the cash will last a few more years and then the questions get harder.