Rivian is the 2nd largest EV maker by market cap behind Tesla and many investors are wondering if Rivian will survive or go out of business.
According to Tesla CEO Elon Musk, Rivian may go bankrupt if the company doesn’t get control of its costs. Musk knows what it takes to run a successful EV company because he successfully kept Tesla from going bankrupt several times. It’s not a good sign that RIVN stock has fallen almost 90% from its peak.
Will Rivian Survive or Go Out of Business?
Rivian shares the same financial problem that plagues Lucid at the moment: cash burn and negative free cash flow.
As Rivian increases production, the company loses more money and spends through its cash on hand. As costs increase, Rivian will be forced to either raise capital through dilutive stock sales or seek outside funding.
We’re currently in an extremely difficult market environment that doesn’t reward companies who are racking up losses. EV stocks may continue to crash until the Fed pivots on interest rates. That probably won’t happen until CPI data shows that core inflation has slowed down.
Rivian is Losing Billions of Dollars Every Quarter
In Q2 2022, Rivian lost $1.7 billion as the company ramped up production. Rivian increased its production in Q3 2022, which means losses have increased as well.
I’ll update this section once Rivian reports Q3 2022 earnings but my guess is the company lost almost $3 billion in Q3 2022. Investors will not be happy with substantial losses and Rivian CEO RJ Scaringe may be forced to raise capital to keep the balance sheet strong.
The good news is that Rivian held over $14 billion in cash in Q2 2022 but that won’t last until the end of 2023 if the company maintains a similar cash burn rate.
Don’t Expect RIVN Stock to Go Up Until Costs Are Under Control
Although Rivian is backed by Amazon, I’m afraid the company is growing too fast in a tough financial environment. I’m worried about a potential bankruptcy risk and believe RIVN stock is way too expensive at these current price levels.
RIVN stock looks much more attractive under $20 and it could crash after Q3 2022 earnings are released.