Final month, we obtained a large shake-up within the electrical automobile (EV) trade. Rivian Automotive (NASDAQ: RIVN) — probably the most profitable EV manufacturers apart from Tesla — inked a $5 billion cope with Volkswagen to fund future development and construct a software program/expertise three way partnership group. Rivian inventory shot up over 30% on the information and is now up 27% previously month.This deal is large for Rivian. Burning a ton of money and operating out of cash from its preliminary public providing (IPO), Rivian can make the most of this funding to additional scale its operations and hopefully attain constructive money stream.This is the thin on the deal and what comes subsequent for the EV inventory.Volkswagen deal: $5 billion capital cushionThe $5 billion cope with Volkswagen comes with a number of steps. There’s an preliminary funding of $1 billion, after which $4 billion coming over the following two years. As well as, $2 billion of future funding will probably be in Rivian fairness (i.e., widespread inventory), whereas $2 billion from Volkswagen will contribute to the newly fashioned three way partnership group.On the finish of Q1, Rivian had a money steadiness of $7.9 billion. Whereas this looks as if loads, the corporate is burning $5.6 billion a yr in free money stream. This new funding extends Rivian’s timeline for reaching profitability, which is able to seemingly take a number of years, provided that the model continues to be subscale (it solely expects to provide 57,000 autos this yr).The deal not solely provides Rivian a money cushion, but additionally an enormous accomplice to deploy its superior automobile software program and expertise to. In line with the announcement, Volkswagen is planning to deploy Rivian’s digital {hardware} and software program methods for its future autos starting within the second half of this decade. It will assist Rivian additional scale its operations and produce in additional income over its fixed-cost investments, hopefully resulting in working leverage on the revenue assertion.Can Rivian attain constructive money stream?Rivian is burning a ton of money. It misplaced $5.6 billion in free money stream during the last 12 months on simply $5 billion in gross sales. Clearly, it must scale its EV manufacturing to be able to stem this burn and finally attain constructive money stream. In any other case, the inventory is not going to be price a lot.At its latest Investor Day, administration acknowledged that it may possibly attain annual manufacturing of 150,000 autos on its present operations. Then, it plans to achieve 215,000 with the addition of the brand new automobile known as the R2, and finally one other 400,000 extra in capability from future autos known as the R3 and R3X. This may convey annual manufacturing from 57,000 at this time to over 600,000 inside just some years, a 10x in quantity development.Story continuesIf/when this occurs, Rivian believes it may possibly constantly convey down its unit prices. The plan is for a 20% price discount for the second era of its first automobile, known as the R1, after which an extra 45% price discount on the R2. With gross margins of -44% at this time, it’s crucial for the corporate to realize these price cuts. Proper now, its unit economics are unsustainable.RIVN Free Money Circulate ChartWhat comes subsequent?Within the close to time period, there are two issues Rivian traders want to look at: manufacturing quantity and gross margins. Each are associated for a automotive producer, and might want to enhance within the coming years to be able to stem the present unsustainable money burn.Over the approaching three to 5 years, Rivian might want to improve its deliveries to hit its deliberate manufacturing capability of 600,000 autos. Extra scale together with price cuts on a per-unit foundation will help gross margins transfer from -45% to 25%, administration’s acknowledged long-term aim.Over the long run, traders have to be monitoring whether or not Rivian hits its long-term goal of a ten% free money stream margin. In the event that they hit this estimate whereas rising manufacturing volumes by 10x, the inventory will seemingly do nicely for traders who purchase at this time. In the event that they hold burning money eternally, the inventory is not going to be price a lot, although.Do you have to make investments $1,000 in Rivian Automotive proper now?Before you purchase inventory in Rivian Automotive, take into account this:The Motley Idiot Inventory Advisor analyst crew simply recognized what they imagine are the 10 finest shares for traders to purchase now… and Rivian Automotive wasn’t one among them. The ten shares that made the reduce may produce monster returns within the coming years.Take into account when Nvidia made this checklist on April 15, 2005… if you happen to invested $1,000 on the time of our advice, you’d have $751,670!*Inventory Advisor gives traders with an easy-to-follow blueprint for achievement, together with steering on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than quadrupled the return of S&P 500 since 2002*.See the ten shares »*Inventory Advisor returns as of July 2, 2024Brett Schafer has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Tesla and Volkswagen Ag. The Motley Idiot has a disclosure coverage.Large Information for Rivian Inventory: This is What Comes Subsequent was initially revealed by The Motley Idiot