Rivian Automotive (NASDAQ:RIVN) received a lifeline, there’s no doubt about it. Sector giant Volkswagen (OTC:VGWAGY), in a breaking news item, decided to invest heavily in the EV manufacturer. The move is intriguing because Rivian will be offering lower-cost models to compete with industry favorite Tesla (NASDAQ:TSLA).
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On paper, Volkswagen’s investment in RIVN stock makes perfect sense. As TipRanks reporter Paul Hoffman stated recently, growth in the EV space has stalled amid consumer concerns, such as inflation and elevated borrowing costs. By targeting middle-income households with lower-cost EVs, Rivian has the potential to become a significant player in the market.
That’s true, but investors shouldn’t forget that the inverse of The Notorious B.I.G.’s message, “Mo’ Money Mo’ Problems” (less money, mo’ problems), applies strongly to the EV ecosystem. And that’s why, although I’ve been inaccurate about casting doubt on Rivian, I still have questions about the enterprise. Indeed, I have more questions, which is why I’m still bearish on RIVN stock.
Volkswagen’s Big Bet on RIVN Stock Might Not Appreciably Change the Calculus
After gaining nearly 9% in the open market session Tuesday, RIVN stock skyrocketed 50% in after-hours trading. As mentioned above, Volkswagen plans to invest heavily in the upstart EV maker, to the tune of up to $5 billion.
An initial investment of $1 billion will start things off. Further, by 2026, the German automaker will likely add an additional $4 billion to the pile. Per a CNBC report, the investment “includes plans for $1 billion each in 2025 and 2026, followed by $2 billion in 2026 related to an expected joint venture to create electrical architecture and software technology.”
As the news agency noted, the “deal will help Rivian on its journey to become cash flow-positive.” More importantly, the influx will help support the company’s upcoming, more economical models — the R2 and R3. The former vehicle is scheduled to hit showroom floors in 2026 with a starting price of $45,000. The latter might start at $37,000, according to a Car and Driver estimate.
However, the numbers that analysts have projected prior to the Volkswagen news require careful thought. For Fiscal 2024, the experts are targeting revenue of $4.73 billion. By the following year, they’re anticipating $6.55 billion. By 2028, the consensus view calls for a top-line print of $23.79 billion. If that last forecast comes true, Rivian would have enjoyed a compound annual growth rate (CAGR) of nearly 40%. Rivian posted revenue of $4.43 billion last year.
Here’s where some questions arise. According to Precedence Research, the global EV sector reached a valuation of $255.54 billion in 2023. By 2033, the sector could be worth almost $2.11 trillion. That comes out to a CAGR of 23.42%. Yes, the comparison times are different. Still, analysts are stating that Rivian will greatly outpace the global EV sector.
On paper, this forecast sounds incredibly bullish for RIVN stock, but I’m just not seeing how the numbers work.
Between 2023 and projected 2025 sales, analysts believe that Rivian’s top line will expand at a CAGR of 21.6%. So, the huge jump in the annual growth rate to almost 40% – going against the mathematical wall of the law of large numbers – seems quite optimistic at best.
Yes, Volkswagen’s investment in RIVN stock makes the R2 and R3 more feasible in terms of scheduling targets. However, the consumer must ultimately be convinced to open his or her wallet. To Hoffman’s point, we’re not seeing great evidence of that.
Competitive Pressures Compound the Situation
Another headwind that makes the projection for RIVN stock suspect is the broader competitive pressure. First, it’s going to be extremely difficult to take on the Chinese EV manufacturers. Compared to Western automakers, China enjoys a lower cost of manufacturing. So, winning against such enterprises will be problematic for a U.S. firm.
To be fair, Rivian could potentially compete aggressively in the domestic market but that too involves very optimistic thinking. Tesla, for all its challenges, is not going to cede ground so easily. Further, while the EV market is screaming for fresh alternatives, just being different might not be enough. That’s where the pricing issue enters front and center stage.
Rivian’s EVs are not cheap. And while the company will introduce relatively modest-priced EVs, other manufacturers – including Tesla – can respond with their own economy models. Further, with Rivian being a new brand, consumers may have difficulty trusting it. Why pay $70,000 for an EV when you can do so from a well-established corporation?
Also, keep in mind that prices “starting at” whatever amount represents the baseline version. Customers who elect this option can expect less range, less performance, and other compromises.
Perhaps the biggest kick in the teeth against RIVN stock is that the consumer market prefers hybrids. This class of personal mobility offers some of the efficiencies inherent in plug-in EVs with the infrastructural convenience of combustion-powered cars; that is, you can drive anywhere in the country without having to worry about finding public charging solutions.
Less Money, Mo’ Problems
As I said earlier, The Notorious B.I.G. may have hit the nail on the head but in an inverse manner. EV manufacturers are now talking a big game about addressing modest-income households. It’s just hard to understand why more analysts aren’t addressing the giant pink elephant in the room: when you go down the income strata, you become dependent on the chosen consumer group’s distinct (or unique) challenges.
Let’s look at it this way: income is directly correlated with homeownership statistics. As B.I.G. might say, mo’ income, mo’ homes. On a related note, a study by Boston Consulting Group stated that prospective EV adopters want three core attributes, one of them being charging solutions in under 20 minutes.
Here’s the deal: when you’re well off, and you own your own home, chances are, it’s a “real” home. By that, I’m referring to a detached structure with a garage, not a condominium. However, when EV firms start targeting middle-income consumers, they’ll invariably raise the number of customers that require public charging because they don’t have access to home charging.
That’s an underappreciated dilemma because charging times are largely out of Rivian’s control. It’s not just about the nation needing more fast-charging infrastructure. Rather, the infrastructure that we already have doesn’t always work, with stations at times suffering from connectivity issues or internal faults or errors.
That might turn off customers, which would obviously be a headwind against RIVN stock. It also might suggest that Volkswagen’s investment risks incurring an opportunity cost.
Is Rivian Automotive Stock a Buy, According to Analysts?
Turning to Wall Street, RIVN stock has a Moderate Buy consensus rating based on 10 Buys, eight Holds, and two Sell ratings. The average RIVN stock price target is $13.79, implying 15.30% upside potential. However, it’s worth noting that RIVN’s after-hours share price reached roughly $18, which would suggest notable downside potential for now.
The Takeaway: RIVN Stock Receives a Mixed-Bag Lifeline
With Volkswagen placing a big bet on Rivian, the EV manufacturer certainly looks much more attractive than it previously did amid the various consumer pressures impacting the sector. The influx should help the company produce its lower-cost R2 and R3 models. However, by addressing the modest-income consumer group, Rivian would also inevitably expose itself to its challenges, particularly the need for public charging. Therefore, the lifeline to RIVN stock appears to be a mixed bag in the long run.
