By Michael Elkins
Piper Sandler downgraded Rivian Automotive (NASDAQ:RIVN) to a Neutral rating (From Overweight) and cut the price target on the stock to $15.00 (From $63.00) as analysts believe the company’s strategy is too costly.
They wrote in a note, “We still like Rivian's strategy, which uses vertical integration to capture lucrative after-sales revenue (e.g. software, service, and charging). Tesla is the only other company with so much ambition, and arguably, Tesla's superiority stems from its ability to unilaterally control all aspects of design, production, sales, and service. The problem is, this strategy is costly. In order for RIVN to justify its cost structure, the company must spread its investment over millions of units (just like Tesla does), and in order to finance such aggressive expansion, RIVN will need capital. Specifically, we think $4B+ will be needed to fund growth beyond 2025. RIVN shouldn't abandon its strategy, but until funding is addressed, we think RIVN will keep trading at book value.”
Analysts think electrification and (eventually) automation will force a permanent change in the auto industry. They say that vertically-integrated, cost-efficient manufacturers like Tesla (and perhaps Rivian) will grow at the expense of existing mass-market brands, while sharing higher-end, but lower-volume, segments with luxury marquees.
Piper Sandler’s updated outlook assumes maximum deliveries of ~1.4M units/year, achieved in 2032. This assumes 200k units of capacity in Illinois, 400k units of capacity in Georgia, and ~1M units of capacity in an undisclosed location. assume mid-teens operating margin starting in 2030s, with outsourced autonomous software. To keep the cash balance from turning negative, this outlook requires a $4B "plug" in 4Q25. Discounting the resulting cash flow at 14.4% WACC would yield a fair value of ~$14.
Shares of RIVN are down 2.85% in pre-market trading.