Sometimes the Street focuses on the wrong metrics and gets worried about problems that, in the long run, are actually pretty insignificant. For example, I remember that in the early 2010s, many investors were very concerned about Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) margins and spending. Of course, the firm (then known as Google) wound up growing tremendously, making those issues inconsequential. I believe that a similar phenomenon is occurring now with electric-vehicle maker Rivian stock (NASDAQ:RIVN), Specifically, Rivian stock is selling off tremendously as investors fret about the firm’s profitability, the growing pains of the EV market as a whole, and Tesla’s (NASDAQ:TSLA) problems.
But these investors’ worries are greatly overdone, and they’re overlooking multiple, strong signs which cumulatively suggest that the automaker is well on its way to becoming one of the world’s premiere EV makers.
As a result, I recommend that long-term investors buy Rivian stock.
Overdone Worries
Concerns about Rivian’s profitability have weighed a great deal on the automaker’s shares. But RIVN has, for the most part, steadily cut its gross margin losses, and it expects its gross margins to turn positive in the fourth quarter of this year. Once its gross margins turn positive, it just has to sell more EVs to become profitable. And as you’ll see in the next section, the firm has many levers to pull to enable it to accomplish that goal.
Tesla’s recent struggles appear to have weighed on Rivian stock in the last few weeks. But in many ways, Rivian is the opposite of Tesla. Rivian’s U.S. sales and its American market share are rising a great deal, while those of Tesla are dropping significantly.
Rivian has upcoming EVs that consumers and the media appear to be excited about, while Tesla’s next steps are uncertain. Rivian has a thriving commercial business that looks poised to keep growing rapidly, while Tesla generates a low percentage of its sales from companies. Tesla has entered most of the world’s markets already ,while Rivian still has a great deal of room to grow overseas. Finally, Tesla’s CEO, Elon Musk, is embroiled in much political controversy, while Rivian doesn’t have that problem at all.
As for overall EV sales, their growth has slowed tremendously in the U.S., as the number of EVs delivered to customers increased only 2.6% last quarter versus Q1 of 2023. However, Rivian’s Q1 deliveries soared 71% year-over-year last quarter. Moreover, with EVs making up 20% or more of total auto sales in a meaningful number of other, sizeable countries, including Germany, China, and France. Rivian will have plenty of opportunities to increase its EV sales going forward. Moreover, as I noted earlier, the automaker’s sales to North American companies look to set to surge.
Tremendous Achievements and Huge Opportunities
At this point, investors are certainly not giving Rivian stock nearly enough credit for its tremendous accomplishments. Amid tremendous competition from many very well-established automakers, including Tesla, Rivian’s R1S SUV was the fourth best-selling EV in the U.S. last quarter, with over 8,000 deliveries. Moreover, although vehicle order totals should be taken with a grain of salt, it’s noteworthy that the automaker obtained over 68,000 reservations for its upcoming R2 SUV in less than 24 hours.
Also importantly, Rivian won a deal to provide hundreds of thousands of delivery vans to Amazon (NASDAQ:AMZN) and, by the end of last year, had already given 10,000 of them to the tech giant. Finally, as I’ve noted previously, AT&T (NYSE:T) has agreed to test Rivian’s delivery vans, while auto reseller JB Poindexter & Co, whose customers include Fedex (NYSE:FDX) and UPS (NYSE:UPS), is selling a new delivery van that utilizes RIVN’s chassis.
Given the deal with Poindexter and the fact that companies seem to like Rivian’s EVs very much, the EV startup looks poised to generate a great deal of revenue by providing its EVs to firms. In the longer term, those revenue streams should boost Rivian stock tremendously. Meanwhile, based on the high order total for the R2 and the buzz online about it, that EV, due to be launched in 2026, should positively move the needle for Rivian.
Additionally, Rivian plans to bring the R2 to Europe, where EVs are much more mainstream. As a result, I believe that the EV could become a tremendous hit on that continent. And finally, the automaker will likely start generating positive gross margins in Q4, making many investors more upbeat about its ability to become profitable.
On the date of publication, Larry Ramer held long positions in RIVN and , AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.