As you may already know, the next big event for Rivian Automotive (NASDAQ:RIVN) is today. That is, the latest quarterly results for RIVN stock will hit the street post-market.
Given that the electric vehicle (or EV) maker’s quarterly production and delivery numbers were released over a month ago, there may not be too many negative surprises.
In fact, with expectations low, even mixed results and updates to guidance may be sufficient to keep RIVN shares on their current upward trajectory.
But while earnings may not necessarily drive the next move lower for Rivian, don’t assume that means that it’s safe to enter a position at today’s prices.
Why? Mostly, because a key issue (more below) continues to persist. Due to this factor, shares risk experiencing additional sharp price declines over the next few months.
RIVN Stock and Today’s Quarterly Earnings Release
Back in February, when Rivian last released quarterly results, the market reacted negatively to news of lower-than-expected revenue and flat annual production guidance.
However, the aforementioned production and delivery figures for the preceding quarter represented a sequential decline. This already placed pressure on shares last month, so another post-earnings selloff for RIVN stock may not happen.
Investors may focus on the more positive aspects of the earnings report. In turn, using it as justification to send the stock moderately higher. Positives that may emerge from the EV maker’s earnings include the potential for the company to report quarterly losses in-line or slightly below estimates.
There is also the possibility that Rivian releases an upward revision to its 2023 vehicle production forecast.
Yet, while the earnings report may be sufficient to get the stock back to $15 per share, or maybe even back toward $20 per share, I wouldn’t count on it continuing to make a strong recovery from there. Again, there’s one issue in particular that threatens to reverse any post-earnings gains, and then some.
Cash Burn Remains a Big Risk
In past articles on RIVN stock, a key red flag that I have focused on is the EV company’s cash burn problem. Sure, heavy cash burn isn’t out of the ordinary for early stage electric vehicle companies. But Rivian’s cash burn issue could pale in comparison to that of another high-profile EV upstart, Lucid (NASDAQ:LCID).
As InvestorPlace contributor Thomas Niel recently argued, Lucid itself has admitted that it could burn through its current cash position as soon as early next year. In contrast, Rivian’s CFO Claire McDonough has previously stated that the company’s cash position ($11.6 billion as of Dec. 31, 2022) gives it enough funds to sustain itself through 2025.
That said, this forecast may be subject to change. At least, that’s the view of Battle Road Research’s Ben Rose and Johnathan Rowe. As Barron’s recently reported, this sell-side analyst team has downgraded RIVN from “hold” to “sell.”
A key reason for their downgrade has to do with the potential for cash burn to accelerate this year. Per Rose and Rowe, numerous factors could drive this. Examples include Tesla’s aggressive vehicle price cuts as well as the current economic slowdown.
The Takeaway
Depending on the degree in which industry- and macro-related headwinds worsen demand for Rivian’s vehicles, the likely gap between this company’s cash runway and that of Lucid may be much shorter than currently expected.
Worse, Rivian may soon have to admit that it’s more or less in the same boat as Lucid. The company may have to sell billions worth of additional shares this year to shore up its cash position.
For reference, RIVN has a market cap today of just $13 billion. The prospect of heavy dilution from a multibillion-dollar capital raise could be enough to send shares down to single-digit prices.
In short, while downside risk for RIVN stock is perhaps low in the near term, it may be quite high as you extend the time horizon. With this, consider it best to keep staying away.
RIVN stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.