While there are no precise definitions for investment versus speculation, I think the distinction is useful for understanding the amount of risk you are taking. Investments have a good probability of working out based on an analysis of the available information. Speculations – on the other hand – are almost impossible to know one way or the other. The upside is large – but so is the downside. On that basis, $35 billion electric vehicle maker Rivian (RIVN) is a speculation.

RIVN reported 2Q22 earnings after the close Thursday. While the business continues to progress with 4,401 vehicles produced and 4,467 delivered in the quarter, the company is in many ways a start-up. Revenue of $364 million was dwarfed by expenses resulting in Adjusted EBITDA of -$1,305 million and Free Cash Flow of -$1,563 million. RIVN has a lot of cash on its balance sheet ($15,463 million) but – as you can see – its burn rate is ~$6 billion/year.

While I’m not qualified to have an opinion on the quality of the vehicles, from a financial standpoint RIVN looks like a coin toss to me. I have no problem with anyone who wants to buy RIVN stock but I think they should be honest with themselves that it’s a speculation not an investment.

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