Rivian Automotive(NASDAQ: RIVN) reached a big milestone when it reported its first-quarter results, producing a gross profit for the second consecutive quarter. That milestone unlocked an added $1 billion in funding from Volkswagen, which is part of its $5.8 billion overall potential investment.
With the electric vehicle (EV) maker starting to get on a roll, let's see if investors should buy the stock before it reaches its next big milestone.
Gross profits remain in focus ahead of the R2 launch
After years of negative gross margins, Rivian appears to have turned the corner with its second straight quarter of positive gross margins. Perhaps even more impressive was that the company's gross margins came in above those of its larger rival Tesla in the first quarter.
For the quarter, Rivian's gross margin was 16.6% compared to 16.3% for Tesla. It's a monumental shift from just a year ago, when Rivian had a negative gross margin of 44% compared to a positive gross margin of 17.4% for Tesla.
The company did a lot of work over the past year revamping its SUV's internal design, input costs, and manufacturing to help reach this gross margin milestone. Meanwhile, its new zonal architecture not only allowed it to significantly reduce costs, but was also a driving factor behind its joint-venture investment from Volkswagen.
The company is now looking to lean more into its higher-margin software. With the launch of its second-generation Rivian Autonomy platform, it recently added a hands-free driving feature for highways (which still requires the driver's attention) and is focused on quickly introducing self-driving that is more autonomous.
Its biggest focus, though, is preparing for the launch of its lower-priced R2 SUV in the first half of next year. The company's R1 remains one of the best-selling luxury electric SUVs in the U.S., particularly in California. But its high price tag limits its overall market.
That is where the R2 comes in. With a price tag projected to be around $45,000, the new SUV is expected to have much wider appeal. In the second half of the year, the company will shut down its factory for about a month to retool to prepare for the R2's launch in the first half of 2026. This should be the next big milestone for the company, and could be the potential trigger for Volkswagen's next $1 billion investment to kick in.
Rivian saw its first-quarter revenue rise by 3% to $1.24 billion despite a big decline in vehicle deliveries. The company produced 14,611 vehicles and delivered 8,640 in the quarter, compared to 13,980 vehicles produced and 13,588 delivered a year ago. Automobile revenue fell by 17% to $922 million, while software revenue more than tripled from $88 million to $318 million. Management said the decline in deliveries was due to higher-than-usual fourth-quarter deliveries of the electric vans it makes for Amazon.
Meanwhile, the company was able to shrink its loss from $1.5 billion a year ago to $541 million. It also shrunk its free cash outflows to $526 million from $1.5 billion a year earlier.
Image source: Getty Images.
Looking ahead, the EV maker reduced its deliveries forecast to between 40,000 and 46,000 units, down from a prior outlook between 46,000 units to 51,000 units. It maintained its guidance for a modest gross profit, as well as an adjusted loss of between $1.7 billion to $1.9 billion as measured by earnings before interest, taxes, depreciation, and amortization (EBITDA).
It said that tariffs would increase its costs by a couple of thousand dollars per vehicle this year. Management said it has enough inventory to carry it through early 2026 and plans to begin U.S.-based battery production with LG by 2027. And it continues to work on its cost structure, including through strategic sourcing and improving its supply chain.
Rivian is also in the process of increasing its production capacity. It's progressing with an expansion to its Illinois factory and plans to begin construction of its Georgia factory next year.
Is the stock a buy?
Despite tariff headwinds, the company is making some strides and has an opportunity to take some market share following Tesla's missteps and the brand damage that has been done. A successful launch of its R2 SUV next year will be pivotal in the company's future. It is already beginning to scale up its manufacturing, and it has ample liquidity to grow its brands.
That said, Rivian does remain a high risk/high reward stock and still has much to prove. But there is little doubt that the company is driving in the right direction. As such, risk-tolerant investors should feel comfortable taking small positions in the stock ahead of its next big milestone, the R2.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
