We’re still deep into winter but soon it will be spring, although maybe not for the beleaguered EV industry. The prevailing notion right now is that electric vehicles still represent the future, but given the current soft demand backdrop, that future might be a bit further away than previously expected. And that is set to impact even the best of the EV start-ups.
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Barclays analyst Dan Levy certainly considers Rivian (NASDAQ:RIVN) to be amongst those. “Alongside leading technology,” says the analyst, “RIVN’s product also offers highly attractive design, and operates in a unique vehicle segment – thus crafting the case for RIVN as a long-term winner.”
The problem, though, it that it looks like a great product and tech is “not enough to avoid the EV winter.” Levy previously thought Rivian had three “legs of demand”: the EDV (commercial van), R1T (pickup truck), and R1S (SUV). Last year, indications of weakening demand for the EDV and R1T appeared, but the analyst remained optimistic that demand for the R1S would stay strong due to a “solid backlog.” However, recent data, including sales figures for R1S inventory units and from the “accelerated launch” of a Standard range version (likely affecting margins), suggest that demand has also softened for the R1S.
“The consequences of weak demand are significant,” says Levy. “Not only does it mean that the volume outlook is challenged, but it also presents potential pricing risk – with both points reinforcing RIVN is likely to miss its 2024 target of reaching gross margin profitability.”
Furthermore, considering the ongoing capital requirements when readying for the high-volume R2 release in 2026, Levy anticipates “future pressure.”
As such, while last year Levy was willing to look beyond concerns around its “ramp to profitability and ongoing cash burn” as Rivian was poised to be one of the main beneficiaries of the auto industry’s major “megatrends,” i.e., the transition to EVs and software defined vehicles, that is no longer the case – at least for now.
As such, Levy has downgraded his RIVN rating from Overweight (i.e., Buy) to Equal Weight (i.e. Neutral) while his price target gets a trim, too. The figure drops from $25 to $16, suggesting the shares have downside of 4% from current levels. (To watch Levy’s track record, click here)
On balance, the Wall Street bulls and skeptics are even matched; with 7 Buys and Holds, each, RIVN stock claims a Moderate Buy consensus rating. Unlike Levy, most seem to think the shares are somewhat undervalued; going by the $22.69 average target, the stock will gain 39% over the one-year timeframe. (See Rivian stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
