RBC keeps Rivian shares at sector perform on lower delivery numbers

On Friday, RBC Capital maintained its Sector Perform rating and $15.00 stock price target for Rivian (NASDAQ:RIVN) Automotive Inc (NASDAQ:RIVN). RBC Capital expressed concerns over the electric vehicle maker's lower delivery numbers in the third quarter, suggesting it may indicate a waning demand.

The firm pointed out that Rivian's liquidity is a frequent topic among investors, emphasizing the importance of the company's deal with Volkswagen (ETR:VOWG_p). The agreement, which is seen as pivotal for Rivian's financial challenges, includes a $1 billion payment expected by the end of the year contingent upon meeting certain financial milestones.

The analyst highlighted Rivian's goal to turn gross profit positive in the fourth quarter of 2024, noting the company's progression from a gross profit of negative $504 million in the first quarter to negative $434 million in the second quarter of 2024.

Achieving a positive gross profit would require significant cost improvements, which may be complicated by the lower delivery numbers. The report also mentioned the increasingly competitive landscape for battery electric vehicles (BEVs) in the United States, specifically citing General Motors (NYSE:GM)' well-received $27,000 Equinox with a 300-mile range.

RBC Capital speculated that Rivian's mid-size R2, priced at $45,000 with a lower range, might struggle to compete in this market. The firm anticipates that Rivian's stock will experience a sharp decline today due to these concerns. Some investors are hopeful that Rivian will meet its Q4/24 gross profit target, possibly through accounting adjustments, but there is skepticism about the company's ability to sustain profitability into the first quarter of 2025.

In other recent news, Rivian Automotive is facing production challenges due to a component shortage, resulting in a lower-than-expected production and delivery for the third quarter, according to Truist Securities. This issue has also led to a reduction in Rivian's full-year 2024 production guidance by roughly 16%.

Amid these production woes, Morgan Stanley has downgraded Rivian's stock from Overweight to Equalweight, lowering the price target due to anticipated increased capital expenditures related to the development of autonomous vehicle technology.

On a promising note, Volkswagen AG (OTC:VWAGY) has announced an investment of up to $5 billion in Rivian, a development that could bolster Rivian's cash reserves and assist the company in achieving its first gross profit by the final quarter of 2024.

Analyst firms Jefferies and Goldman Sachs have maintained their ratings on Rivian, with Jefferies focusing on variable cost improvements in the third quarter and Goldman Sachs highlighting potential growth drivers such as the introduction of the R2 platform and the expansion of commercial vehicle sales.

These recent developments come as Rivian plans to build another assembly plant in Georgia, despite facing setbacks like a fire at its Illinois plant and a pause in the production of its electric delivery vans due to the parts shortage. As these events unfold, Rivian strives to navigate these challenges and continue its operations.

InvestingPro Insights

Recent data from InvestingPro sheds additional light on Rivian's financial situation, aligning with RBC Capital's concerns. The company's market capitalization stands at $10.87 billion, reflecting the market's current valuation of the electric vehicle maker.

InvestingPro Tips highlight that Rivian is "quickly burning through cash" and "suffers from weak gross profit margins," which corroborates the analyst's focus on the company's liquidity and profitability challenges. The gross profit margin for the last twelve months as of Q2 2024 was -41.1%, underscoring the significant improvements needed to reach the company's goal of positive gross profit by Q4 2024.

Despite these challenges, Rivian's revenue growth remains strong at 68.2% for the last twelve months, indicating that the company is still expanding its market presence. However, the quarterly revenue growth has slowed to 3.3% in Q2 2024, which may support concerns about potentially waning demand.

For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Rivian, providing deeper insights into the company's financial health and market position.

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