- Wednesday, October 16, 2024
Investors remained unimpressed with the recent performance of Rivian Automotive Inc., despite the company exceeding expectations for the quarter. Concerns are now centered around Rivian's planned downtime and ongoing cash burn.
Stock Performance
Rivian's stock experienced a significant drop of over 5% on Wednesday, contributing to investor skepticism.
Scaling Challenges
Emmanuel Rosner, an analyst from Deutsche Bank, expressed encouragement regarding Rivian's progress in scaling its business. However, he highlighted that this process would require several weeks of plant shutdowns next year, as well as a lengthy ramp-up period in the current quarter. As a result, Rosner believes that Wall Street's volume expectations for 2024 may be overly optimistic. Deutsche Bank has adjusted its delivery forecast for next year from 85,000 vehicles to 65,000.
Mixed Ratings
Garrett Nelson from CFRA upgraded his rating on Rivian's shares to neutral from sell but remains cautious about the stock. Although Rivian performed well in terms of sales, Nelson pointed out that the company continues to face challenges. With a quarterly cash burn of approximately $1 billion and a mass production rate that is not yet competitive in terms of cost structure, Rivian still has difficulties ahead.
Meanwhile, Andres Sheppard of Cantor Fitzgerald, who holds a buy rating on Rivian shares, expressed more optimism about the EV maker's prospects.
Despite the positive aspects of Rivian's performance, concerns surrounding downtime, cash burn, and production rates have dampened investor enthusiasm.
Rivian Poised to Meet Production Guidance and Pursue New Opportunities
Rivian, the electric vehicle (EV) manufacturer, has raised its 2023 production guidance to 54,000 vehicles, up from the previous expectation of 52,000 vehicles. Despite this increased target, the company only needs to produce 14,309 vehicles in the fourth quarter, which is less than its third-quarter output. The fourth quarter is traditionally a strong period for production and delivery.
The company's continuous improvement in gross margins has also been noted as an encouraging sign. Furthermore, the expiration of Rivian's exclusivity agreement with Amazon is seen as beneficial as it opens up the possibility for the company to explore other commercial opportunities for its EVs.
Although there is an expectation for Rivian to fulfill its agreement with Amazon, industry analysts believe that the company will aggressively pursue additional commercial partnerships to increase revenues. These potential partnerships are not currently factored into financial models.
In light of the positive third-quarter earnings, Piper Sandler analyst Alexander Potter expressed cautious optimism for Rivian's future growth. While acknowledging the brand's appeal and differentiation in the U.S. auto industry, Potter emphasized the challenges that lie ahead in executing Rivian's ambitious plans for 2024 and 2025.
The stock valuation reflects the delicate balance between Rivian's recent strong performance and the demanding execution timeline over the next two years. The analyst mentioned that modeling capital expenditure and cash flow prove to be challenging tasks.
The next couple of years will be especially critical for Rivian as it undertakes the construction of a new plant in Atlanta and temporarily shuts down its existing facility in Illinois for retooling. There is a non-zero risk of potential delays and cost overruns associated with these processes.
Rivian's Stock Performance in Contrast
Shares of Rivian have experienced a downward trend this year, with a decline of approximately 8%. In comparison, the S&P 500 index (SPX) has seen gains of around 14%.
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