Rivian Automotive (NASDAQ:RIVN) is in the middle of a tremendous run higher. A partnership with Volkswagen (OTCMKTS:VWAGY) will infuse billions into the electric vehicle automaker and give it an ownership stake in the company.
The EV industry itself is showing life, with many automakers reporting robust deliveries for the second quarter. Many are reading this as the reported death of electric cars is greatly exaggerated.
Yet Rivian itself isn’t really benefiting, at least not with its electric SUVs. The VW deal is for Rvian’s software and its own second-quarter deliveries growth was modest at best. The EV maker has said it wants to return to its original dual-track strategy but one of those tracks may be more valuable than the other and EVs just might not be it.
A New Lease on Life?
The big news that sent Rivian stock off to the races, of course, was the partnership with Volkswagen. The German automaker is investing $2 billion into a joint venture with Rivian as cash and loans. It is establishing a $1 billion equity stake in the EV maker now, and will invest an additional $2 billion into Rivian stock over the next two years.
In exchange, Rivian will develop next generation software-defined vehicle (SDV) platforms to be used by both company’s EVs. The cash influx will certainly allow Rivian to continue operating for years to come.
Although I have previously cautioned against buying RIVN stock, I also warned against shorting its shares. I recently wrote, “Yet because Rivian has $6.8 billion in cash, equivalents and short-term investments, I wouldn’t short the stock. The SUV maker is not going out of business tomorrow.”
And that cash balance was before the VW deal. The EV maker has sufficient liquidity and it will be around for years.
Swimming Against the Tide
The issue for Rivian is there remains a demand problem for EVs. After Tesla (NASDAQ:TSLA) ignited a price war by cutting prices on its Model 3 and Model Y, other automakers followed suit, dramatically cutting prices. It caused the hoped-for bounce in sales, but that is not sustainable.
Tesla had to resort to additional incentives for buyers to purchase its EVs. It offered low-interest financing and lower cost lease terms, and it still saw deliveries drop 5% year-over-year. It was better than the falloff Wall Street was expecting, but it shows just how weak the market is.
Similarly, Lucid Group (NASDAQ:LCID) had to significantly cut prices on its luxury vehicles to move them. While deliveries surged 70% year-over-year the high-end EV maker still has a substantial backlog of unsold vehicles sitting on dealer lots.
Moreover, where Tesla is profitable and can afford to see its margins narrow by cutting prices and introducing more incentives, Lucid and Rivian are not. They are already losing tens of thousands of dollars on every car produced and price cuts will only worsen the situation.
Hedging Your Bets
Rivian delivered 13,790 EVs in the second quarter, only 1.5% more than it delivered in the first quarter. They were actually down 1.3% from the year ago figure. While it was more than the 13,000 to 13,300 EVs Rivian forecast, the slowdown was not completely unexpected as the EV maker closed its manufacturing plant for a period for upgrades.
The automaker maintains it will produce 57,000 vehicles this year and will achieve gross profitability on every vehicle sold by the fourth quarter. This will happen because of cost-savings arising from the plant upgrade. It lost nearly $39,000 on each SUV sold in the second quarter.
Part of the VW partnership could include joint production at Rivian’s plant. Investors Business Daily reports a German news outlet says VW’s U.S. EV, the Scout, could be produced there.
Investors, though, have no reason to jump in now and buy the stock. They should wait to see if Rivian’s plans really come to fruition.
It may continue to be the real value in Rivian stock lies in its vehicle software rather than its EVs. As that would fundamentally change the nature of its business, staying on the sidelines is the best approach to RIVN stock.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.