In December 2021, Morgan Stanley’s Adam Jonas gave EV maker Rivian (RIVN) an outperform rating and a price target of $147.
Rivian is “the one,” he maintains, that has the greatest potential to be a serious challenge to Tesla. His latest assessment came in a March 25 note that conceded Fiscal 2022 has been “challenging,” especially in regard to ramping up production.
Jonas, however, isn’t throwing in the towel and says despite bottlenecks, growing pains, and a sharp stock decline – these “reality checks” haven’t dissuaded him in his overall confidence in Rivian’s strategy.
So, is Jonas an incurable optimist? Or does his experience give him a perspective that others lack?
Let’s start with some facts. Rivian is an EV startup located in Irvine, California, that went public in November 2021. Back then, the stock was priced at $78 per share, but it has progressively slid after hitting a surprise post-IPO high of $180 per share.
Yes, the price of Rivian stock has declined 51% this year as the markets have adopted a risk-off attitude.
That said, there are more than enough reasons to keep the faith. Rivian has set ambitious 2022 plans to produce up to 25,000 vehicles. According to its most recent financial report, a total of 2,425 units have been manufactured as of March 8, but the ramping up process – according to the company – is moving at pace, and there are hints this Amazon-backed EV startup could experience a turnaround in its stock price in the following months.
I am neutral on the stock.
Rivian Stock: A Technical Overview
From a technical perspective, Rivian has broken multiple areas of support since the company went public, and this favors a bearish outlook unless the price action reclaims some of that lost territory.
In February, the Soros Fund Management, the hedge fund founded and run by billionaire investor George Soros, stood out among the most important backers of the EV startup after purchasing 20 million shares of the company during the fourth quarter of 2020.
Prominent institutional backers like Soros tend to propel the stock price as they usually validate other investors who might have been waiting on the fences while assessing the merits of the investment.
Moreover, the company recently appointed a new chief operations officer who will be in charge of overseeing the development and growth of the company’s manufacturing capabilities.
Despite these positive developments, the risk-off attitude prompted by the armed conflict between Ukraine and Russia could lead to further declines in Rivian stock as market sentiment continues to be relatively sour toward risky assets.
Momentum indicators have climbed to higher levels with the Relative Strength Index (RSI) moving near the 50 level for the first since December, while the MACD has crossed above the signal line.
Moving forward, investors should keep an eye on the $50 level as a break above this threshold could indicate that the trend is reversing for Rivian stock. However, it will only be a move above the $70 level that would confirm a full-blown trend reversal in the near term.
Rivian Fundamentals
On March 10, Rivian reported its financial results covering Q4 and FY 2021.
Sales during the fourth quarter landed at $54 million with a total of 909 vehicles being delivered during the three months ended on December 31. In total, the company delivered 920 vehicles in 2021, and produced $55 million in sales.
Operating losses for the quarter landed at $2.45 billion, while annual operating losses ended at $4.22 billion. Net losses accelerated to $2.46 billion during the quarter, and $4.69 billion during the entire year.
The firm reported long-term debt of $1.23 billion along with $218 million in lease liabilities. Total assets stood at $22.29 billion including $18.13 billion in cash and equivalents.
Net operating cash flows were negative in 2021 with the company burning through $2.62 billion while capital expenditures ended at $1.79 billion, as Rivian kept investing to expand its manufacturing capacity rapidly.
Rivian’s cash reserves seem sufficient for the company to stay afloat over the next couple of years. Some of that money will have to be used for the construction of another plant in Georgia – a project that the company has already announced – and further expansion of the Normal, Illinois, manufacturing facility to the point that it can produce up to 200,000 units per year.
In 2022, Rivian management expects to produce 25,000 vehicles and generate an adjusted EBITDA loss of $4.75 billion, along with capital expenditures of $2.6 billion.
Wall Street’s Take
Despite some of the challenges that the firm currently faces, Wall Street remains optimistic about the company’s future as indicated by analysts’ consensus rating for the stock – which is Moderate Buy.
The average Rivian price target is $76.08, suggesting 51.4% upside potential. The highest estimate for the stock stands at $130, and the lowest at $35.
No analyst has rated the stock a Sell and this points to the fact that market participants are expecting a lot from this EV startup. This is not something investors should ignore, as these financial services firms tend to draft their predictions based on insightful industry-specific data.
Moving forward, Rivian remains a promising player in the EV landscape due to its partnership with Amazon (AMZN) to produce vehicles that empower the giant shipping fleet of the e-commerce giant. An order for 100,000 vehicles from the company founded by Jeff Bezos remains in play.
The recent decline in the stock price has brought down the valuation to a point that some investors might consider appealing, as the firm has already proven that its vehicles are functional and live up to the technical promises made by management.
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