Shares of EV maker Rivian (NASDAQ: RIVN) have been on a bit of a rollercoaster ride in 2024. After starting the year priced north of $23 per share, they dropped to less than $9 per share by mid-April. By mid-July, they got back up above $18 before falling under $10 in November. Now, shares are on the rise again.

As of the December 26 close, Rivian shares have returned 34% in the past month. However, they are still down a substantial 41% year-to-date, currently trading at just over $14. I’ll detail Rivian’s latest quarterly results and analyze its plan for success to understand the merits of the stock as a long-term investment.

Supply Chain Issues Cause Rivian Production to Plummet

Looking at Rivian’s recent financial results, it’s not difficult to understand why this company's stock price has fallen so much in 2024. They are producing and delivering fewer cars. In Q3, the company delivered just over 10,000 cars, the lowest figure since Q2 2023. This is a 36% drop from Q3 2023. The number of vehicles produced was also down 19% from the same quarter in 2023. Significant supply chain issues impacted this.

Although things really aren’t going well right now, there are reasons the Bulls believe Rivian could turn things around. These hopes are what are pushing shares higher. The business of making and selling cars generally isn’t that profitable, a reality Rivian is deeply aware of. Its normalized net income margin over the last 12 months is -76%. Becoming a profitable company is undoubtedly the most important and daunting task Rivian faces. There are several ways Rivian is working to achieve this.

Rivian’s Potential Path to Profitability

The company has established itself as a strong player in EV software. The company launched a $5.8 billion joint venture with one of the world’s largest automakers, Volkswagen (OTCMKTS: VWAGY). Volkswagen will invest up to $5.8 billion in Rivian and will use Rivian’s software in its coming EVs. Software is inherently a much more profitable business than manufacturing cars. Rivian’s ability to generate revenue from licensing its software is one factor that can help it improve profits over the long term.

However, if Rivian really wants to be a success, it will have to do so by greatly reducing how much it costs to make cars. It appears to be making some strides. First off, it projects to have a positive gross margin in Q4. This comes from a 20% projected reduction in the prices of its materials compared to Q1. Additionally, the company also plans to sell many regulatory credits. This strategy will also be how the company expects to be gross margin positive in 2025.

In the long term, another driver of profit will be cost cuts for its upcoming models. The company expects an additional 45% cut in material costs for its R2 model, which will come out in 2026. However, the R2 may provide a limited profit boost. Its selling price is only projected to be $45,000. New R1s currently sell for a minimum of $78,000. That drop in price is around 42%, similar to the 45% forecasted drop in materials costs. However, the lower price point may attract many more buyers. This could greatly increase the company’s economies of scale, helping to increase profitability and drive growth.

Q4 May Reveal Critical Answers Around Rivian

Overall, Rivian is a company that has significant opportunities but also faces significant risks. The partnership with Volkswagen does inspire confidence and provides the company with significant cash it can use as a runway. However, the company has shown little consistency in becoming more profitable. It has also faced supply chain and production issues throughout its history. This reduces confidence in management’s ability to get the job done.

Additionally, the company’s sales are falling as the overall EV market grows. The U.S. EV market grew at a solid 11% in Q3 and hit a record size. Next quarter’s results will be a strong indicator of Rivian’s future. If its production and sales recover while delivering on its promise to become gross margin positive, that will be a step in the right direction. However, the plan for achieving profitability over the long term is still largely questionable. For me, Rivian falls in the wait-and-see category. Average Wall Street price targets imply an upside of 12% in Rivian shares.