An EV Maker Has Been Downgraded And Slashes Price Target By 50%

According to RBC Capital Markets, it's time to take a break from Rivian Automotive. 

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Analyst Tom Narayan lowered Rivian to sector perform from outperform, citing a lack of near-term catalysts for the once-hot electric car company. 

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"RIVN is well positioned to capture market share as the industry shifts towards electrification, and we continue to believe its clean-sheet approach and vertical integration will allow for higher margins at scale," Narayan said in a client letter on Tuesday. 

"While the R2 [vehicle] reveal and production ramp can help sentiment, we see limited catalysts to accelerate profitability in the near term and believe margins will remain constrained," he said. 

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In addition, the analyst reduced his price estimate for Rivian from $28 to $14. The new price target is somewhat higher than the closing price on Tuesday, which was $13.43. In the premarket on Wednesday, the stock was down 2%. 

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Rivian had one of the most significant public debuts in November 2021, when its assumed valuation of $86 billion propelled the electric car manufacturer over Ford's market cap. 

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Today, Rivian's market capitalization is over $12.4 billion. The stock is down 27% this year and 82% in 2022, as increasing interest rates and rising inflation have soured investors on startup prospects. 

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The analyst anticipates that Rivian's margins would increase, but that the business will be unable to reduce fixed costs due to the restricted availability of power semiconductors this year. 

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"Fixed cost overhead is the single largest driver of margin improvement, accounting for two-thirds of the overall bridge to gross margin expansion, but we believe there is limited ability to accelerate beyond the current plan," Narayan said.

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“We believe the upside to the 50k production target is limited (we model 51.9k) because RIVN is constrained on power semiconductor availability this year, and while they have taken action to help mitigate the situation (added to supplier base and cut the number of modules needed in a vehicle)," the analyst stated.

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