The electric vehicle (EV) revolution is in full swing. Rivian (NASDAQ: RIVN) has emerged as a player with invigorating products and bold ambitions. However, despite the company’s potential, I believe there are several compelling reasons why Rivian stock may be a risky investment.

Burning cash

My main problem is the lack of profitability. As a youthful company that is still in its growth phase, Rivian is investing cash to boost production and develop modern vehicles. While such cash burn is to be expected in the world of electric vehicle startups, the sheer rate at which the company is depleting its reserves is alarming.

Reports show a decline from nearly $20 billion at the end of 2021 to less than $8 billion today. This trend raises questions about whether the company can continue operating in the long term without additional financing.

Even more worryingly, losses have escalated in recent years, increasing by 35% annually.

Competition

The electric vehicle market is becoming more and more crowded. Recognized car manufacturers such as Ferry AND General Motors allocate funds to the development of their own electric vehicles. Additionally, Tesla still dominates the market, making it hard for modern entrants to enter the market.

These newcomers face an uphill task convincing consumers to choose the brand over more established players with a proven track record, especially in less established regions around the world.

Let’s look at the numbers, first the price to sales ratio (P/S), because the company is unprofitable. The factor of 2.8 is much higher than the calculated value of 0.3 times. Even with growth expectations of 33% in the coming years, I’m afraid the market isn’t convinced. It’s challenging to disagree with this, considering the share price dropped by over 50% in 2024 alone.

The company has ambitious plans for the future, and the R1T pickup truck and the R1S SUV are already popular. As many investors in the electric vehicle space know, translating these plans into reality is another story. Production delays and disruptions can seriously hamper your ability to achieve your goals and emerge as a credible brand.

In a time of economic uncertainty and high interest rates, investors should be wary of the risks inherent in a youthful company navigating the complexities of large-scale automotive production.

As Tesla CEO Elon Musk has repeatedly noted in recent years, high interest rates and a potential economic downturn could dampen consumer enthusiasm for high-priced electric vehicles. In such an environment, government incentives for electric vehicles could be reduced or eliminated, making it even more hard for modern players to get off the ground.

Friends in high places

Rivian boasts a forceful collaboration with Amazon, which has pre-ordered a significant number of delivery vehicles. However, this also creates a situation where success is to some extent dependent on the fortunes of the other company. If Amazon changes its delivery strategy or decides to source delivery vehicles elsewhere, it could be a major blow to Rivian’s production volumes and revenue stream.

The most significant thing

Rivian has the potential to become a major player in the electric vehicle market. The company’s inventive vehicles and forceful partnerships are impressive. For me, however, the current picture is far from rosy.

The combination of unproven profitability, a crowded market, execution risk and economic uncertainty make it risky at best. For now, I will stay away from Rivian resources.