Rivian’s ‘daunting’ production ramp keeps investors cautious

None of this helped Rivian’s stock, which was down more than 5% on Wednesday.

Deutsche Bank analyst Emmanuel Rosner said he was “encouraged” by some of Rivian’s progress as it scales its business. “At the same time, Rivian was very open this will require multi weeks of plant shutdowns” next year, along with a “rather elongated ramp” in the current quarter.

“We believe this could mean 2024 volume expectations from [Wall Street] may be too high” at 75,00 vehicles, he said. Deutsche Bank cut its next year’s delivery forecast to 65,000, from a previous call of 85,000.

Garrett Nelson with CFRA upgraded his rating on Rivian’s shares to the equivalent of neutral, from sell, remaining somewhat cautious on the stock.

Rivian’s beat was driven by stronger-than-expected sales, he said.

“Still, with a quarterly cash burn in the neighborhood of [$1 billion] and the company still nowhere near hitting the mass production rates which would achieve a more competitive cost structure, we see further difficulties ahead,” he said.

Cantor Fitzgerald’s Andres Sheppard, who has a buy rating on Rivian shares, sounded more optimistic about the EV maker’s prospects.

To meet its 2023 production guidance of 54,000 vehicles, which Rivian on Tuesday raised from a previous expectation of 52,000 vehicles, the company needs to produce “only” 14,309 vehicles in fourth quarter, which is less than what it produced in the third quarter and achievable also because fourth quarter “tends to be the strongest for production/delivery,” Sheppard said.

“Additionally, we are encouraged by the company’s continuous improvement in gross margins,” and the end of exclusivity with Amazon is “beneficial, given we expect it to permit the company to pursue other commercial opportunities for its EDVs.”

“While we continue to expect Rivian to fulfill its agreement with Amazon,
and we continue to view this relationship as a meaningful differentiator, we expect the company to aggressively pursue additional commercial partnerships, which could result in increased revenues currently not included in our model,” the analyst said.

Piper Sandler analyst Alexander Potter perhaps summarized it best: Third-quarter earnings were “heartening, but we’re still neutral ahead of a daunting ramp” in 2024 and 2025.

The current stock valuation “balances Rivian’s recently strong execution against a challenging 2+ year execution plan,” Potter said. “Rivian has one of the most appealing brands in the U.S. auto industry, but we struggle to model capex and cash flow.”

That will be “especially true” in the next couple of years, as Rivian builds its new plant in the Atlanta area and temporarily shuts down for retooling its existing plant in Illinois a couple of times, the analyst said. “There’s a non-zero risk of delays and cost overruns.”

Shares of Rivian have lost about 8% so far this year, contrasting with gains of around 14% for the S&P 500 index
SPX.