Should You Buy Rivian If Shares Fall Below $10?

Rivian (RIVN 0.79%) stock has significant upside potential. But you wouldn’t know that by looking at its recent trajectory. In 2024 alone, Rivian shares have lost roughly half their value and are dangerously close to falling below $10 per share. If you’re willing to take on extra risk for the chance to make 1,000% or more in profits, this looks like your chance. But there are some factors you need to be aware of before jumping in.

2 reasons you should bet on Rivian stock right now

Rivian’s share price is in the dumps this year, and the company’s sales growth paints a clear picture why. Revenue growth has stagnated this year, but that’s true for nearly every other electric car market, Tesla (NASDAQ: TSLA) included.

In fact, Tesla experienced a drop in revenues earlier this year while Rivian was still growing its sales by double digits. Tesla has since bounced back, and last quarter grew its sales at a faster rate than Rivian. But both companies are clearly struggling right now — a time in which EV demand growth has consistently come in lower than expected.

There are, however, two reasons to believe that Rivian’s predicament is about to turn a corner.

First, the company expects to achieve positive gross margins by the end of the year. There’s still a huge gap to cross, with Rivian losing $32,000 for every vehicle it sells. That figure is a tremendous improvement versus quarters past, but it remains a huge leap away from positive gross profit. Tesla achieved positive gross margins fairly early on in its history. And if Rivian can come through as promised, expect the market to react very favorably, as positive gross margins not only extend the company’s capital runway, but also demonstrate that its vehicles can be sold profitably at a price point that customers can afford.

The second event that will radically shift Rivian’s fate positively will be the launch of its mass market vehicles: the R2, R3, and R3X. These three vehicles — all of which are expected to debut under $50,000 — could help replicate Tesla’s success with the Model Y and Model 3. It was those two mass market vehicles that fueled Tesla’s second and third growth spurts. Rivian’s revenue has grown by more than 1,000% since it went public in 2021, reaching $5 billion earlier this year. But as mentioned, sales growth has stagnated recently. These new models could see it double or triple its revenue base by the end of the decade.

If Rivian can achieve positive gross margins and execute the launch of its new models, expect its sizable valuation discount with Tesla to close quickly.

TSLA PS Ratio data by YCharts.

Before you jump in, understand these risks

In my opinion, the only investors that should jump into Rivian stock right now are those that are willing to commit to diamond hands. That is, only those willing to stomach a lot of volatility over the next few years should get involved. There are a few reasons for this.

First, it remains very uncertain whether Rivian will actually achieve positive gross margins this year, despite management saying that it will. In quarters past, the company was able to improve gross margins a few thousand dollars at a time. I expect Rivian to execute on this milestone over the next year or so, but it may fail to deliver on its promises this year, calling into question its capital runway and ability to achieve profitability in an increasingly crowded marketplace.

The second factor that makes Rivian a tricky investment for most is that its new models — the R2, R3, and R3X — aren’t expected to hit the roads until 2026. In fact, customers may not receive some variants until 2027. By default, this makes Rivian a long-term investment only, with minimal hard catalysts over the next several years.

All that said, Rivian’s valuation has gotten too cheap to ignore. Shares, for example, trade at an 80% discount to Tesla on a price-to-sales basis. Even before the stock falls below the $10 mark, aggressive growth investors looking for maximum upside potential should consider getting involved. Just be sure to dollar-cost average your way down should shares slip even further, as they have done for the entirety of 2024.