Rivian Automotive (RIVN 5.03%) stock is on a roll. A recent move higher has gone into overdrive over the past two days. That’s because of yesterday’s announcement that many investors see as a pivotal moment for Rivian’s long-term success.
The company has received a conditional commitment from the U.S. Department of Energy (DOE) for a large loan that should support Rivian into its next phase of growth. That has shares moving higher again today by 3.7% as of 12:15 p.m. ET. The news, combined with progress in the underlying business, has pushed the stock up by over 20% in the past week.
Rivian’s push toward profitability
Rivian’s business has been progressing reasonably well, even in the face of supply chain issues and lower consumer demand for electric vehicles (EVs) than some expected. In its third-quarter report earlier this month, Rivian management reiterated its expectations to generate positive gross margin in the current quarter.
The company has reduced capital spending plans and made cost-cutting efforts to help achieve that goal. One decision was to begin the first line of its R2 vehicle production at its existing production facility in Illinois. A prior plan to invest additional capital in a second manufacturing plant in Georgia was put on hold with that decision.
However, yesterday’s announcement of a $6.6 billion conditional loan from the DOE to help fund that second facility’s construction has investors seeing a path toward another phase of growth for Rivian. The plant will ultimately have the capacity for 400,000 vehicles annually, and the project should result in 7,500 full-time operations jobs by 2030.
Investors who envision the additional capacity leading to positive free cash flow for the company are buying the stock ahead of those business results. That’s an aggressive position to take, but one that could pay off in the end. Investors should just realize the many risks that still remain, and allocate any position accordingly.
Howard Smith has positions in Rivian Automotive. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
