Companies and Markets

The Ratings Game: Rivian stock drops to lowest in six weeks on weaker 2023 outlook

Rivian Automotive Inc. stock dropped more than 17% on Wednesday, a day after the electric-vehicle maker pinned mixed quarterly results and a weaker production guidance on manufacturing snags that many on Wall Street thought were in the rearview mirror.

Rivian stock

was on track for its lowest close since Jan. 20 and its worst one-day drop since May 9, when it fell 21%. The stock is down 90% from its record closing high of $172.01 hit in November 2021 shortly after its massive IPO.

The company late Tuesday reported disappointing results for its fourth quarter and said it continued to be hampered by supply-chain problems.

Rivian guided for the production of about 50,000 vehicles this year, from less than 25,000 vehicles produced in 2022.

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The 2023 outlook was disappointing, Tom Narayan with RBC Capital said in a note Wednesday. Narayan cut his price target on Rivian shares to $28, from $50, “to be more in line with peer multiples.” The new price target implies a 76% upside over Wednesday’s share price.

“(Rivian is) still battling supply chain challenges that (management) indicated would be the main limiting factor this year. Specifically, this relates to limited supply of power semiconductors” which are unlikely to improve until the second half of the year, the analyst said.

Negatives are outweighing the positives at the moment, wrote Michael Shlisky with Davidson. Shlisky also cut his price target on Rivian stock to $16, from $23, zeroing in on the below-expectation production outlook.

“That said, (Rivian) outlined some of the strategic moves that underpin part of the shortfall, and cash burn is expected to slow down gradually,” the analyst said.

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The EV maker “didn’t paint a strong picture on new demand, either, but noted that it is booked into 2024 thanks to preorders.” Overall, “with the news flow still skewing negative, we’re staying cautious.”

Chris McNally at Evercore ISI noted that the below-consensus production guidance will lead to fewer than 45,000 sales because of the production to deliveries lag, or about $4 billion in revenue for the year. Rivian’s Ebitda loss and capital expenditures lead to a free cash flow burn of $6 billion or greater.

Rivian became a public company with about $18 billion in cash, and its year-end 2022 cash of $12.1 billion “should dwindle to (about $6 billion) by YE23, which will elevate funding concerns,” McNally said.

The analyst estimated that Rivian will burn an additional $5 billion to $6 billion FCF through 2024 and 20225, potentially turning Ebitda positive in 2025 and 2026 “which will necessitate a capital raise by ’24 at the latest.”

Shares of Rivian have lost about 74% in the past 12 months, compared with losses of around 8% for the S&P 500 index.


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