Rivian Faces Analyst Downgrade Amid Concerns Over EV Demand and Profitability

Key Takeaway

• UBS downgrades Rivian (RIVN) from buy to sell, slashing the price target from $24 to $8 due to weaker EV demand and profitability concerns.
• Rivian faces challenges with tepid vehicle demand, potential 2024 guidance risks, and a likely need for significant capital raising soon.
• Despite a 44% stock decline over the past year, Rivian's strategy raises questions on sustainability amid slow EV market growth.

Analyst Downgrade

Rivian Automotive Inc. faced a significant setback as UBS analysts downgraded the stock from buy to sell, with a price target of $8, a substantial decrease from the previous target of $24. This rare two-rung downgrade reflects concerns over weaker demand for electric vehicles (EVs) in the U.S. and the challenges Rivian faces in terms of profitability and cash flow. The analysts highlighted tepid demand for Rivian's vehicles, potential risks to its 2024 guidance, and the likelihood of a substantial capital raise in the near future.

Financial Performance

Rivian's recent guidance announcement, indicating flat production for the year, led to investor unease. The company reported a larger-than-expected quarterly loss, although revenue met estimates. Despite these challenges, Rivian plans to introduce a more affordable electric SUV priced at around $45,000, aiming to tap into a broader market segment. However, the existing luxury EVs, starting at $70,000, face limited demand amidst concerns about a slowdown in the EV market.

Long-Term Strategy

UBS analysts expressed doubts about Rivian's long-term growth prospects, particularly with the reliance on the R2 model, which is not expected to impact finances significantly until 2027. The current strategy, while vertically integrated, poses cash flow challenges in a market environment with slower EV demand. Questions arise about the sustainability of this strategy and the need for potential pivots or partnerships to enhance capital efficiency.

Market Response

Rivian's stock has experienced a significant decline of 44% over the past 12 months, contrasting with the S&P 500 index's gains. The average price target for Rivian's shares is $19.28, with a mix of buy, hold, and sell ratings from analysts. The market response to Rivian's recent challenges underscores the need for the company to address fundamental issues in its business model to regain investor confidence.

Street Views

• Joseph Spak, UBS (Bearish on Rivian):

  "We had been optimistic on [Rivian’s] product and brand ultimately winning out... Now there’s a 'more tepid' U.S. demand for EVs and Rivian’s vehicles, risk to Rivian’s 2024 guidance and a likely substantial capital raise in the horizon." "Rivian's existing luxury EVs — a pickup truck and a full-size SUV — are marketed as 'adventure' off-road vehicles and start at about $70,000, limiting their demand against general concern about a demand slowdown for EVs." "Further out, [Rivian] growth is reliant on R2 … but we don’t believe production starts until late 2026, so meaningful financial impact isn’t until 2027 – a long time to wait for a product the stock hinges on." "[Rivian's] current strategy is onerous on cash... It makes sense to be vertically integrated, but it’s costly and clashes with the dual realities of near-term slower EV demand and a vastly different capital market environment for EVs."