It has been tough sledding for Rivian Automotive (RIVN 1.95%) since going public in 2021. The stock is down 90% from all-time highs as the company struggles to generate a profit and grow deliveries for its line of electric vehicles (EVs). It is a testament to the bubble in EV stocks that occurred a few years back. Now, Rivian's valuation is back closer to reality.

A 90% cheaper stock price may make some contrarian investors perk up. If the company can turn around and ride the EV wave to bigger scale, the stock may have a bright future ahead of it. Let's run the numbers and see whether Rivian stock can reverse its fortunes in the years ahead.

Upcoming cheaper model

Rivian has begun its life at as a manufacturer of EVs by focusing on larger and more expensive vehicles. These are the R1T truck, R1S SUV, and the Rivian commercial van sold to delivery providers such as Amazon. These products can be profitable, but with large price tags they have a limited addressable market.

In the future, Rivian is pinning its hopes on more affordable midsize SUVs. First up will be the R2 vehicle, which is coming hopefully in 2026 and will cost $45,000 at the base level. Further on in this decade will be the R3, a much more affordable small SUV expected to cost $37,000. These price points will make Rivian vehicles much more affordable for the average American looking for a car compared to its current vehicles, which can run up close to $100,000 with add-on features.

This is needed quickly, because Rivian's deliveries to customers have stalled out and actually declined in recent quarters. Customers love the product, but with a high price point there is only so much demand you will get.

These cheaper models can hopefully boost deliveries for the rest of the decade and help Rivian achieve even more scale. Scale is vital in the automotive business due to the high fixed costs of manufacturing cars. This is why Rivian's gross margin is barely positive and free cash flow was negative $1.86 billion over the last 12 months.

Image source: Getty Images.

Lots of liquidity, but tough competitive environment

Demand for EVs is set to grow over the next 10 to 20 years. Analysts estimate that around 20% of car purchases in the United States currently come from battery electric vehicles or hybrid cars. Eventually, close to 100% of new car purchases should be from EVs -- and of these purchases, more and more should come from full battery-electric cars like those Rivian sells.

This should be a multi-decade tailwind that companies like Rivian can ride. The company has a lot of liquidity to access on its balance sheet, including $7.2 billion in cash, $3.5 billion in commitments from Volkswagen as a part of a joint venture, and a $6.6 billion loan from the federal government. This is a war chest that can help Rivian scale up its fixed manufacturing base for the R2 and R3 vehicle lines. Burning less than $2 billion in cash a year, it has many years ahead before it will run into cash burn concerns.

All sounds well and good, but Rivian is dealing with a hypercompetitive environment with EVs right now. It is a bit better in the United States compared to other markets because of the lack of Chinese brands driving down prices, but it is a tough road even for the leaders such as Tesla. With more and more models coming to market, it looks like the supply of EVs outpaced the growth in demand, and the market is now processing this overcapacity. This flooding of supply will make it difficult for a smaller player like Rivian to compete and try to win customers.

RIVN Free Cash Flow data by YCharts

Is Rivian stock set for a bright future?

Rivian stock is a tough one to value. On the one hand, the company has some of the best products in the EV industry, an industry set to grow for the foreseeable future. On the other hand, there are a ton of competitors in the mix, some with much larger balance sheets and manufacturing capacity than Rivian. It remains to be seen whether Rivian's upcoming cheaper models will lead to more demand from customers, and if that can be done while generating a profit.

Putting it all together, it remains unclear whether Rivian's future is bright. The stock trades at what looks like a potentially cheap market cap of $16.6 billion if the company can get any semblance of scale with the R2 and R3 models. I don't know how confident investors should be in this occurring, though. Perhaps now is a good time to take a small position in Rivian stock if you like the brand, but don't bet the entire farm on this highly risky situation.