JPMorgan Downgrades Rivian Automotive Inc (RIVN) to Underweight
JPMorgan analyst Ryan Brinkman downgraded Rivian Automotive Inc (NASDAQ: RIVN) from Neutral to Underweight with a price target of $11.00 (from $20.00).
The analyst comments "We are downgrading shares of Rivian Automotive (RIVN) to Underweight from Neutral after slashing our estimates and price target to account for substantially slower growth amidst continued large losses. The reasons for our downgrade are multifold, including: (1) The company has fallen far short of its own targets for vehicle sales and production, let alone the seemingly much more ebullient expectations of its investors, and disappointing new guidance revealed yesterday implies essentially no growth in 2024 (in our view strongly hinting at growing demand problems that leave little likelihood for a re-acceleration of growth until at least 2026); (2) Profitability has also fallen short of plan, with the targeted timing of generating gross profits or even reaching contribution margin positive (i.e., ignoring fixed costs) — continuing to slip, with this latter factor leaving the company in the unenviable situation of standing to grow its losses for each additional vehicle produced. Management yesterday guided to a 2024 EBITDA loss of -$2.7 bn, a bit higher than the Street was looking for and as compares to JPMe just -$1.9 bn. Our new estimates do not call for the company to generate positive EBITDA until 2026 and free cash flow not until 2027. We expect the company to lose another -$3.1 bn of EBITDA and see another -$7.6 bn of free cash outflow before it is likey to turn the tide, with another capital raise (on far from certain terms) likely needed by the 2026 timeframe; (3) We worry there could be downside risk to even our much reduced sales and profitability estimates stemming largely from factors beyond Rivian’s control, such as any decision on key rival Tesla’s part to continue to trade profits for sales (unit sales, not revenue, as Tesla in its most recently completed quarter reported a +20% y/y increase in global deliveries but just a +1% y/y increase in automotive revenue, implying an almost unheard of -19% y/y pricing decline); (4) We also relatedly worry that Rivian could potentially soon be at risk (upon further depletion of its already notably reduced order bank) of entering into a period reminiscent of Tesla in late 2022 in which it may be forced to lower prices simply to sustain the pace of sales outside observers may mistakenly believe it is sustainably on; in the case of Tesla, this led to significant automotive gross margin erosion (from a high of 32.0% in 1Q22 before the price cuts to 18.9% in 4Q23), but, unlike Tesla, Rivan has no cushion of strong gross margin profitability (or any positive margin at all) into which it can dip; and (5) Despite the large decline in RIVN share price since the time of its IPO (to say nothing of the $170.01 level it quickly rallied to thereafter), we push back on notions the stock is inexpensive or reflects only option value (for example, given its still large gross cash balance) and regard RIVN shares as even highly expensive when compared to GM and Ford. In conjunction with our downgrade, our December 2024 price target for RIVN shares declines by -50%, to $10 from $20, on account of our new materially lower estimates through 2027 and lower assumed long-term growth rate, given the relative at least pausing of y/y growth so soon in what was earlier expected to be a strong expansion phase."
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Shares of Rivian Automotive Inc closed at $15.39 yesterday.