Rivian Stock: Buy, Sell, or Hold?

The investment landscape for electric vehicle (EV) companies is in disarray, in part because of the troubles of the current U.S. EV sales leader. Tesla (NASDAQ: TSLA) CEO Elon Musk's controversial actions and statements over the past several months are affecting sales for the vehicle manufacturer and tech company both in the U.S. and internationally. Tesla's woes have some investors wondering if there is an opportunity for Rivian Automotive (NASDAQ: RIVN) to gain more sales traction, trim its losses, and get its stock off the mat.

Rivian stock is trading down by more than 90% from the all-time high it touched shortly after it went public in late 2021. If it does benefit from Tesla's woes, the stock is sure to rise as well. However, investors should look both ways before crossing the street to buy Rivian stock. Management set a disappointing bar for 2025, and economic and political factors could work against the company.

Rivian is dealing with a challenging business environment

Regardless of your political slant, it's hard to argue against the idea that Musk's political involvement has polarized people's views about the Tesla brand. Recent registration data for new Teslas in Europe and widespread protests of the brand point to a likely first-quarter sales decline for its EVs. If Tesla's sales are actually sliding and continue to, that could benefit other EV companies, including Rivian.

Rivian could desperately use a shot of sales momentum. The company delivered 50,122 vehicles in 2023 and barely improved on that with 51,579 deliveries in 2024. That backdrop makes management's recent guidance that it would deliver between 46,000 and 51,000 EVs in 2025 even more disappointing. Rivian released its Q4 report only about a month ago, which seems recent enough that management might have recognized any potential Tesla-related tailwinds and adjusted guidance accordingly. Perhaps management will do so later.

More importantly, investors shouldn't underestimate the worrying macroeconomic and political headwinds that could buffet smaller EV makers. First and foremost, struggling consumers may pull back on big-ticket purchases. U.S. consumer sentiment has plunged to lows seen only a handful of times over the past 70 years. Additionally, delinquencies on automotive loans are approaching highs last seen during the 2008 financial crisis and the COVID-19 pandemic.

Meanwhile, political policies are also moving against Rivian. President Trump has signaled his intentions to pull congressionally approved funding from electric vehicle initiatives, including federal tax credits for EV buyers. Plus, the government has announced stiff new tariffs on imported vehicles and components. Rivian's vehicles are manufactured in the United States, but those new tariffs are on non-U.S. auto parts as well and could add costs to its supply chain. Management didn't want to discuss specifics on the Q4 earnings call, but it did acknowledge that tariffs and potential incentive changes will affect its guidance for 2025.

Ultimately, all of these issues put this already struggling company in an even more precarious position.

Getting a clear read on Rivian's finances

When Rivian reports on its profitability, it uses an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) metric that takes an already non-GAAP metric and excludes additional expenses to arrive at a final figure. In 2024, it booked an adjusted EBITDA loss of $2.68 billion; this year, management anticipates that will improve to a loss of between $1.7 billion and $1.9 billion.

But Rivian's free cash flow and net income numbers reveal its actual cash and bottom-line losses:

Data by YCharts.

The good news is that Rivian is making financial progress. Moreover, while Rivian booked a $1.2 billion gross loss in 2024, its gross margins turned positive in Q4, and it hopes to turn a modest gross profit in 2025. The company has approximately $10 billion in new incremental capital from its joint venture with Volkswagen and a loan from the U.S. Department of Energy.

So while the macroeconomic environment may be challenging, the business is well-funded and can work toward launching its upcoming models, the R2, R3, and R3X.

Is Rivian a buy, sell, or hold?

Rivian stock is still a particularly risky investment because the company's survival alone doesn't guarantee a good outcome for shareholders.

Two problems immediately stand out.

First, Rivan's valuation, measured on an enterprise-value-to-revenue basis, is still higher than that of almost every automaker aside from Tesla. It's tough to justify such a premium considering its steep losses and virtually flat deliveries over the past few years.

Second, Rivian's stock-based compensation last year was equal to almost 14% of its revenue. Management excludes that from its adjusted EBITDA numbers, which is why the earlier chart showed far worse losses. Stock-based compensation causes share dilution, slowly diminishing the upside potential for shareholders by spreading Rivian's sales and (eventual) profits thinner among a larger shareholder base.

There are more red flags than green flags. Rivian is slowly diluting investors while they wait, for who knows how long, for a business that isn't growing and is losing tons of money to figure things out. That makes it difficult to justify buying or holding Rivian stock, particularly while its valuation is still higher than all of its peers. For now, consider Rivian a sell.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.