Is Rivian Stock a Buy Now?

With Rivian Automotive (NASDAQ: RIVN) set to report earnings after the market close on Nov. 4, investors may be wondering if the stock is a buy now. The company has already released its production and delivery numbers early in October, so there will be no surprises there.

It delivered 13,201 vehicles in the third quarter, while producing 10,720. That was up substantially from Q2, when it delivered 10,661 new electric vehicles (EVs) and made just 5,979 new SUVs. Analysts were expecting 12,955 deliveries in the quarter.

The production numbers were down in Q2 due to supply chain issues related to tariffs. Meanwhile, production was up in Q3 despite the company shutting down production lines for three weeks in September to increase its annual production capacity. However, deliveries likely got a boost and drivers ran out to buy EVs before the end of the $7,500 federal EV tax credit in September.

Rivian also narrowed its full-year delivery guidance to between 41,500 and 43,500 vehicles. That compares to earlier guidance for yearly deliveries of between 40,000 to 46,000 vehicles.

Margins and the R2 in focus

With its delivery and production numbers already out, investors are likely to key in on Rivian's gross margin, as well as commentary about the upcoming launch of its R2 vehicle. While Rivian has seen solid sales, it's had a negative gross margin for most of its existence, which means it was selling its popular SUVs for less than the cost of making them.

It was able to produce a positive gross margin in back-to-back quarters in Q4 and then in Q1, but it returned to negative in Q2. The two consecutive quarters of gross profits triggered a $1 billion investment from Volkswagen, which will invest up to $5.8 billion in the company if certain milestones are met.

Rivian has worked to improve its gross margin. Its biggest move was switching to a zonal architecture, which greatly lowered the number of electronic control units and wiring in its SUVs, making them cheaper to build. It also reduced some material costs and improved the line rates of its manufacturing plant.

However, in Q2, it saw higher material costs after China cut back on the export of heavy rare-earth metals due to its ongoing trade war with the U.S. How the company is navigating this issue could play a big role in how the stock performs in the near term.

Meanwhile, the most important part of the Rivian story will be the launch of its new, smaller R2 SUV next year. Starting at a price of around $45,000, the vehicle will be much cheaper than the R1, which when fully loaded costs upward of $100,000. With the lower price point, the R2 is expected to appeal to a much wider audience while also having a better gross margin due to higher volumes and lower material costs that have already been locked in through supplier contracts. As a result, the company is aiming to be EBITDA breakeven in 2027.

Image source: Getty Images.

Should investors buy the stock?

Rivian is an intriguing company. Building a profitable EV company is not easy, as it's a capital-intensive business and getting to scale is paramount. Many traditional automakers have struggled to manufacture EVs with positive gross margins. However, Rivian's new zonal architecture is a differentiator, while its backing from heavyweights Amazon and Volkswagen, along with a government loan, gives it the cash runway it needs to scale.

However, the current tariff situation and trade war with China adds a new element to the story. Meanwhile, the loss of the $7,500 EV federal tax credit is another big headwind.

The stock remains a high-risk, high-reward name, and given the current environment, I'd probably wait on the sidelines for now. Its generating negative free cash flow, and with some questions about the strength of the economy and impending EV headwinds, this might not be the type of stock to own right now.

Geoffrey Seiler has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.