Rivian Faces Rare Double Downgrade from UBS Analyst, Stock Drops Pre-Market

Key Takeaway

• UBS issues a rare double downgrade on Rivian, dropping its rating to sell and cutting the price target to $8, signaling a 30.1% potential stock decline.
• Concerns over Rivian's profitability and demand for electric vehicles lead to lowered delivery forecasts for 2025-2027, with a possible capital raise in 2025.
• Following the downgrade, Rivian's stock fell nearly 1% pre-market, continuing its over 51% drop in 2024 amidst broader analyst skepticism.

Downgrade and Concerns

Rivian faced a significant setback as UBS analyst Joseph Spak issued a rare double-downgrade on the electric vehicle company, lowering the rating to sell from buy and slashing the price target to $8 from $24. This move implies a 30.1% potential decline in the stock price from the previous day's close. Spak highlighted concerns about Rivian's current strategy amidst a changing electric vehicle landscape, leading to a reassessment of demand projections and profitability prospects. The cooled demand for battery electric vehicles poses a material risk to consensus expectations, with UBS' delivery forecast for 2025 to 2027 now significantly below prior estimates and the Street's consensus.

Financial Challenges and Capital Raise

Spak also expressed worries about Rivian's ability to meet 2024 gross profit and EBITDA guidance, indicating a delay in the timeline for the company to break even on EBITDA and free cash flow. The analyst foresees a potential capital raise in 2025 that could represent around 30% of the company's total market capitalization. Despite these challenges, Spak acknowledged that strong demand for electric vehicles and strategic adjustments could positively impact Rivian's performance in the future.

Market Response and Analyst Sentiment

Following the downgrade, Rivian's stock experienced a nearly 1% decline before the market opening on Friday, adding to the more than 51% plunge in 2024, erasing all gains from the previous year. UBS' downgrade aligns with a growing sentiment among analysts, with JPMorgan also lowering its rating on Rivian to underweight from neutral and reducing the price target to $11. Analyst Ryan Brinkman cited the company's failure to meet sales and production targets, coupled with lackluster growth projections for 2024, as reasons for the downgrade.

Street Views

• Joseph Spak, UBS (Bearish on Rivian):

  "We had been optimistic on RIVN’s product and brand ultimately winning out. But a rapidly changing EV backdrop causes us to reassess our demand view and makes RIVN’s current strategy quite onerous on the ramp to profitability and cash flow."

• Ryan Brinkman, JPMorgan (Bearish on Rivian):

  "The reasons for our downgrade are multifold, including: (1) The company has fallen far short of its own targets for vehicle sales and production, let alone the seemingly much more ebullient expectations of its investors, and disappointing new guidance revealed yesterday implies essentially no growth in 2024."