On Thursday, Jefferies initiated coverage on Rivian (NASDAQ:RIVN) Automotive Inc (NASDAQ:RIVN) with a Buy rating and a price target of $16.00. The firm highlighted Rivian's similarities to Tesla (NASDAQ:TSLA), including its own software stack, strong brand identity, and global potential, despite experiencing similar growth challenges. Rivian is currently on a capital spending trajectory, which if managed successfully, could address gaps in the company's business model.
Rivian is facing two crucial challenges this year: firstly, reducing unit production costs by $35-40k through redesign, purchasing, and manufacturing efficiency; and secondly, proving that its upcoming R2 model can be developed more cost-effectively than its predecessor, the R1.
The presentation of the R2 model was scheduled for March 7th. These factors will play a significant role in determining the conditions under which Rivian will raise the estimated $2.5 billion in funding needed to support the launch of the R2.
The company's ability to remain independent or the potential value of its intellectual property to a larger organization will be contingent on overcoming these hurdles. As Rivian navigates through anticipated reduced volumes in the first half of the year, stock volatility is expected. Jefferies projects that Rivian will exhaust approximately $9 billion in cash before achieving positive free cash flow in 2027.
The valuation of Rivian shares is based on a discounted cash flow model, resulting in the $16 price target. Currently, the shares are trading at 1.1x and 0.84x sales for the years 2024 and 2025, respectively. This is in contrast to Tesla, which is trading at 5.4x revenue and holds a rating of Hold from Jefferies.
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