Shares of Rivian (NASDAQ: RIVN) have dropped 55% this year as the company continues to disappoint investors looking for an inflection in the business. The latest was a reduction in full-year production, from an expected 57,000 vehicles to a new range of 47,000 to 49,000 vehicles. This continues a multi-year run of disappointing production results from the electric vehicle (EV) maker.

But is this the time to jump on Rivian, with the stock down? It may be riskier than you might think.

Rivian's cash and cost problem

It's worth starting with Rivian's balance sheet. The company had $7.9 billion in cash and equivalents at the end of the second quarter of 2024, offset by $5.5 billion in debt.

That seems like a lot of cash until you consider the company's cash burned from operations of $4 billion. This was driven by $3.8 billion in ongoing operating costs from research and development (R&D) and selling, general, and administrative (SG&A) expenses. Why are costs so high? It comes down to Rivian's decision to vertically integrate, designing motors, software, the car, and even the sales experience. That makes the business very expensive to run and dependent on scale to be profitable.

To get out of this hole, Rivian needs to increase both the number of vehicles it's producing and the margin it's making per vehicle. Without both, the company is in trouble.

Margins and the scaling problem

Right now, Rivian is losing money on every car it sells. Management claimed the company would be gross profit positive by the fourth quarter, but that's likely out now that production levels are lower than previously expected. But even a small gross profit isn't enough with the operating losses you see above.

Rivian needs to expand production beyond Normal, Illinois, which only has the capacity to make about 215,000 vehicles. The plan is to open a new facility in Georgia, but that's years away.

A recent filing with the Department of Energy said Rivian hopes to begin production in third-quarter 2027, with full capacity being reached in late 2028. In the meantime, the company is going to burn around $4 billion per year from operations, even if it's gross profit positive, on top of the ~$2.5 billion needed to build the first phase of the Georgia plant.

Even when the Georgia plant is built, the company will be at a capacity of about 400,000 and still need to generate about $10,000 in profit per vehicle to cover the $4 billion in operating costs. That's a margin Rivian has never demonstrated at a time when it's moving down market and competitors are rushing into EVs.