Rivian Automotive (NASDAQ:RIVN) shares stepped on the accelerator in December, surging a staggering 40% in the final month of 2023 after the electric truckmaker promised investors it would achieve gross margin profitability in 2024 – and announced a simplified battery pack to reduce costs and help make that happen. But then reality set in.
The first week of 2024 has seen Rivian give back more than half of December’s gains, as the stock plunged 19% over four short trading days. And it probably didn’t help matters much that, on Thursday, Wolfe Research analyst Rod Lache came out with a new 2024 Auto Industry Outlook in which he upgraded Rivian’s biggest electric truck rival, General Motors, downgraded Rivian stock to Perform (i.e. Neutral) – and removed his price target on Rivian stock entirely. (To watch Lache’s track record, click here)
In Thursday’s note, Lache explained his reasoning for cutting Rivian from his buy list. On the one hand, “Rivian achieved a major operational inflection point during 2023… cleared production bottlenecks and ramped production from 9,400 vehicles in Q1 to 17,500 vehicles in Q4.”
The company appears to have achieved its stated goal of hitting a 65,000-unit per year production rate for R1T electric trucks and R1S electric SUVs, and be well on its way to growing that production rate to 85,000 units (at the same time as it downshifts production of electric vans for Amazon to 65,000.) It’s also on course to erase its current $1.8 billion-a-year gross loss, and begin earning at least de minimis gross profits by the fourth quarter of this year.
That’s the good news.
The bad news is that Rivian will continue running gross losses through at least the first three quarters of this year, putting the total gross loss for the year at about $680 million. The worse news is that operating expenses are still running in the neighborhood of $800 million per quarter. As a result, result operating losses at the company could be as high as $4.6 billion for the year.
Long-term, the hope for Rivian is still that it will be able to keep its head above water until it can begin producing its more budget-priced R2 line of mid-size electric SUVs (relatively budget-priced at $40,000 to $60,000 per unit). “With a lower cost higher volume platform,” notes Lache, this might suffice to put Rivian in “an entirely different competitive position” after the R2 arrives. That being said, the R2 isn’t expected to come to market until 2026, which “is still quite far away,” deadpans the analyst.
Meanwhile, Rivian is likely to burn through more than half its current $9.6 billion in cash over the course of 2024. Unless cost reductions are pretty dramatic this year, that probably means the company will run out of cash in 2025. Whether it’s able to limp over the finish line before the money runs out, so that its R2 family of EVs can arrive in time to save the company, remains to be seen.
Failing that, the company will need to sell more shares, or take on more debt, to raise the cash needed to bring the R2 to market. In the event stock dilution becomes necessary, Rivian stock could be worth quite a bit less.
So, that’s Wolfe Research’s view, let’s turn our attention now to rest of the Street: RIVN’s 13 Buys, 8 Holds and 1 Sell coalesce into a Moderate Buy rating. There’s considerable potential for growth, ~33%, if RIVN achieves the consensus target price of $25.37 over the next 12 months. (See RIVN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
