Rays of light have been creeping into the darkened EV space. Shares of those operating in the segment have been subjected to sustained beatings, which have spanned across the ecosystem, from the bigger players to the smaller fish.
But EV stocks have been rebounding recently, amongst them shares of Rivian (NASDAQ:RIVN), which have bounced by 30% since bottoming out in mid-April. Despite the sector’s well-documented issues of waning demand against a difficult macro backdrop, this EV maker is seen as the one that might be able to become a real rival to segment leader Tesla.
Tesla aside, Morgan Stanley analyst Adam Jonas also thinks Rivian has plenty to offer investors. “We see Rivian as uniquely positioned within autos (other than Tesla) on scaling a fully integrated software stack critical to unlocking the AI opportunity… at a market value 1/60th that of Tesla,” Jonas explained. “The stock’s direction is a balance of dilution risk vs. potential strategic partner re-rate.”
Jonas’ comments come in the wake of a recent meeting with Rivian CEO RJ Scaringe and his team, during which management reaffirmed their confidence in the company’s ability to achieve its positive gross margin target by Q4. This will be done through a combination of a reduction in BOM (bill of materials) costs, the Normal plant conversion, and the upside from regulatory credits as traditional OEMs scale back on EV production and opt to purchase credits to comply with EPA regulations.
Additionally, Scaringe highlighted Rivian’s structural advantages due to the company’s fully integrated software and perception stack, as well as its potential for partnerships. “Given Rivian’s structural advantages in the software stack,” says the analyst, “it can follow that Rivian can explore partnerships with legacy OEMs on their network architecture to reduce ECUs.”
As cited by Scaringe, a good example of the partnership model can be seen in the VW/XPeng collaboration. “We note that while there are no announced negotiations/partnerships, the openness to such opportunity is positive,” Jonas said on the matter.
Given the current backdrop of continued slowdown in the EV space, Jonas thinks it is wise to take a conservative stance on the profitability outlook, believing the company’s ability to “manage the burn (and associated equity dilution risk) is critical to adding more ‘time value’ to the strategic AI option.”
All told, Jonas rates RIVN shares an Overweight (i.e., Buy), backed by a $13 price target, suggesting the stock will climb 19% higher over the coming months. (To watch Jonas’ track record, click here)
Looking at the consensus breakdown, based on a total of 10 Buy recommendations, 8 Holds and 2 Sells, the Street’s view is that RIVN stock is a Moderate Buy. Going by the $13.89 average price target, a year from now, shares will be changing hands for a ~27% premium. (See Rivian stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
