The largest initial public offering (IPO) of 2021 has come back down to earth. Electric vehicle (EV) upstart Rivian Automotive (NASDAQ: RIVN) went public with a $100 billion market cap, raising over $10 billion in the process. Today, its stock is down 94% from all-time highs as production stalls and the company burns enormous levels of cash every quarter. Its market cap is only $10.5 billion today.

Management will be updating investors with third-quarter earnings results on Nov. 7. Optimistic investors may say the company is in hypergrowth mode and set to stabilize due to a deal with Volkswagen. Bears may say the company will run out of cash within a year or two. It's time to see whether you should buy the dip on Rivian stock before its Q3 earnings are released.

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Stalled production, losing to the competition

Rivian's narrative is that it is a premium EV brand. It has a truck called the R1T with strong reviews and seemingly happy customers. The price of its vehicles pushes toward $100,000 or higher, making them only available for wealthier customers. The company began production and deliveries in 2022, growing rapidly as its customer backlog was fulfilled.

In recent quarters, production and delivery growth has stalled. The company delivered just 10,000 vehicles in Q3 (it gives out this figure before earnings), which is its lowest level since March 2023. This is not due to some huge slowdown in the EV market, either. Tesla is delivering close to 500,000 vehicles to customers every quarter, which shows the demand for EV products.

Rivian does not have an affordable vehicle, making it tough for most potential customers to finance a purchase. This coincided with the Federal Reserve raising interest rates to combat inflation, which made financing a vehicle from Rivian even more unaffordable. The cars may be great, but in order to build a viable automotive business, you need to sell more than 10,000 cars a quarter (unless you are an ultra-luxury brand).

Will Volkswagen save Rivian?

With stalling vehicle sales, Rivian is losing money. And quickly. Last quarter, revenue was barely higher at $1.16 billion, and its operating loss got even worse at $1.375 billion in just three months. Rivian has a negative gross margin, which means it loses money on every car it sells before even accounting for overhead costs. Free cash flow was negative $5 billion over the last 12 months, a number that will be similar in Q3 given its stalling delivery figures.

Perhaps because it is in a desperate position, management just announced a partnership where Volkswagen would invest $5 billion into Rivian's business. In return, Volkswagen can use some of Rivian's technology in its new lineup of EVs that will be available in the next decade. Perhaps it will be used on its new Scout vehicles that were announced this week.

Either way, Rivian needs the cash, and Volkswagen is giving it a lifeline. Well, at least $5 billion that can stem another year of huge cash burn.

Should you buy the stock?

No, you should not buy Rivian stock.

It is clear the company is operating with terrible unit economics. It is also not growing and is burning $5 billion in free cash flow a year. Within two or three years, Rivian will run out of money even including the infusion from Volkswagen. Cash on the balance sheet today (before the Volkswagen deal) is barely over $5 billion.

The stock may be down over 90% from all-time highs, but Rivian debuted at an absurd valuation. It doesn't matter what market cap or price the stock trades at. Rivian is showing no signs it can generate a profit, which is how value is generated for stockholders over the long term. Nothing else matters. Keep Rivian stock away from your portfolio unless this management team performs a miracle and gets the business to positive cash flow.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.

Should You Buy Rivian Stock Before Nov. 7? was originally published by The Motley Fool