The Key Metric That Could Propel Rivian's Stock Value

Many investors are on the lookout for the next Tesla. However, identifying such an opportunity is challenging. Tesla revolutionized the automotive industry by making electric vehicles (EVs) appealing to the masses. For those who might have missed Tesla's remarkable growth, a new contender may be emerging: Rivian (RIVN -1.59%).

There is one crucial figure that investors should pay attention to in Rivian's upcoming fourth-quarter earnings report, scheduled for February 20. This number could be the key to unlocking further potential in Rivian's stock.

The Path to Potential Growth

Tesla has distinguished itself from other EV makers by consistently delivering profits and presenting an exciting future. Innovations like robotaxis and artificial intelligence (AI) technology make it a compelling investment. This narrative is a big part of why Tesla's stock trades at a higher price-to-sales (P/S) ratio than many newcomers in the market.

The potential for Rivian's growth lies in its ability to show that it has a clear path to profitability. If Rivian can establish confidence among investors about its financial future, it will create demand for its stock and narrow the gap between its valuation and that of its rivals. What Rivian does not require are complex technologies like robotaxis or AI; instead, it needs to achieve a positive gross profit in the fourth quarter and for the full fiscal year of 2025.

However, reaching a positive gross profit is no small feat, especially considering the recent production challenges and supply chain issues the company has faced, despite management's optimism. Rivian has made some slow and inconsistent progress toward positive gross profits, which is evident in its financial reports.

While Rivian's trajectory has not been perfectly linear, the upcoming fourth quarter could serve as a pivotal moment for the company. Even if Rivian does not anticipate achieving positive gross profit in every quarter of 2025, the expectation of positive results for the year as a whole would be a significant boost.

If Rivian can demonstrate continuous improvement in its gross profits, it could reassure investors about the company's long-term potential. For instance, during the third quarter, Rivian's stock price increased despite missing earnings expectations because management remained committed to achieving gross profit in the fourth quarter.

A positive gross profit would significantly help Rivian close the valuation gap with competitors like Lucid Motors, which Rivian outsells by a substantial margin.

Challenges Ahead for Rivian

Despite the considerable upside that Rivian might experience by reaching a P/S valuation comparable to its competitors, it's important to recognize that the path will likely be rocky. Two primary factors loom over Rivian's stock pricing in the coming year: government policy changes and the lack of catalysts in 2025.

The incoming administration has indicated it will scale back support for the EV sector, including plans to eliminate the federal tax credit for EV purchases, which previously offered up to $7,500. Rivian vehicles have only been eligible for partial benefits, potentially creating market uncertainty throughout 2025.

Moreover, Rivian is expected to launch new models, such as the R2, R3, and R3X, in 2026, but the absence of new launches in 2025 may result in the stock being subjected to the prevailing negative sentiment surrounding the overall EV market.

In conclusion, Rivian holds significant potential as it strives to reduce costs and work towards profitability. The fourth quarter is a critical benchmark, especially if it can achieve positive gross profit. This single metric is what investors should prioritize when considering Rivian's near-term prospects.

Rivian, Stock, Profitability