Should You Buy Rivian When It's Below $16?

The electric vehicle (EV) industry hasn't been kind to investors. Many emerging EV companies that went public over the past few years have seen their share prices tumble as rising interest rates and increasing vehicle costs dampened EV demand.

Rivian Automotive (NASDAQ: RIVN) hasn't been immune to the EV drop. But it's premature to write the obituaries of electric vehicle companies, especially Rivian. Here's why I'm betting on Rivian, and why it might be a good time to buy the stock while it's under $16.

Rivian bears are skeptical

There's no getting around the fact that Rivian needs to generate more revenue and begin earning a profit on each vehicle it sells.

Image source: Getty Images.

The company recently reported its second-quarter results (which ended June 30), and revenue increased by 3% to $1.16 billion, ahead of Wall Street's consensus estimate of $1.14 billion. Rivian's loss per share was $1.13, ahead of analysts' estimate of a loss of $1.21.

Despite the revenue and earnings beat, some investors were spooked that Rivian's losses widened in the quarter to $1.46 billion from $1.2 billion in the year-ago quarter. While that wasn't great, management noted that part of the losses came from selling inventory from its first-generation models, which were produced before cost-cutting measures were introduced (more on that in a moment).

Production also slowed slightly to 9,612 vehicles as the company switched to its second-generation vehicle production, but Rivian reiterated its full-year production goal of 57,000 vehicles.

The ho-hum quarter is a good example of why some investors are skeptical about Rivian. But while there is some challenging work ahead, there are a few reasons why Rivian is headed in the right direction.

Rivian is on the right track

Rivian's management says it's on track to be gross profit positive by the end of the fourth quarter, which would be a significant achievement for the young EV maker. And Rivian has taken some significant steps to help get there.

The company recently reengineered many of the vehicles' internals, reducing the wiring and the amount of electronic control units (ECUs) in the vehicles. The result is a 35% reduction in the material costs of its electric vans and a similar reduction for its R1T truck and R1S SUV.

Rivian also paused construction of its new Georgia plant and instead focused on vehicle production at its existing plant in Normal, Illinois, saving it $2 billion. Both of these steps show Rivian's commitment to its profitability goals and a focus on its long-term longevity.

Established automakers are taking notice. Volkswagen , the second-largest carmaker in the world by vehicle production, recently launched a joint venture with Rivian . The deal will give Volkswagen access to the in-vehicle technology it needs, while Rivian received a $1 billion investment and up to $5 billion.

A joint venture doesn't guarantee Rivian's success, but it shows that an established automaker recognizes that Rivian is producing a unique product in the EV market.

Should you buy Rivian right now?

Rivian still has a lot to prove. The company needs to show it can increase vehicle production, achieve gross profitability, and navigate an increasingly competitive EV market.

The company has already proved it has a fantastic product, with 86% of Rivian owners saying they'd buy another vehicle from the company and Rivian topping Consumer Reports' vehicle customer satisfaction list.

Rivian's shares trade at a price-to-sales (P/S) ratio of about 2.8 right now, much lower than its P/S of 7.5 this time last year. That gives investors a chance to buy Rivian's shares at a relative discount.

Rivian is by no means guaranteed success, but the company's commitment to lowering costs and reaching profitability, its new joint venture with Volkswagen, and its well-received products indicate it is well on its way to becoming a formidable EV player. For investors looking for an EV maker that's making the right decisions now that could pay off down the road, this stock looks like a good buy right now.

Chris Neiger has positions in Rivian Automotive. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy .