Rivian (RIVN) shares fell Friday after bullish analyst Alexander Potter of Piper Sandler downgraded the EV maker’s stock. Although Potter is still a fan of Rivian’s Tesla-like strategy, he noted deteriorating market conditions and widening losses as reasons for the lower price target.
Rivian stock price target downgraded at Piper Sandler
Potter reduced his price target by 76%, from $63 a share to $15, downgrading Rivian stock from an Overweight rating to Neutral.
In his note to investors, according to Bloomberg, the analyst explains that although he still likes Rivian’s strategy to generate revenue with software and services, it’s also a costly one. He wrote:
In this market, frugality matters more than ambition.
The analyst is referring to rising interest rates causing excessive debt to balloon, becoming more expensive.
The Federal Reserve raised interest rates at a pace not seen since the 1980s last year to cool surging inflation. Higher interest rates can make outstanding debt and borrowing costs more expensive, making it harder for start-ups like Rivian to raise funds for an expansion.
As a result, investors sold high-growth unprofitable companies for safer markets, making it harder for companies to access cheap capital through equity raises.
Rivian’s stock has fallen over 66% over the past 12 months and is down 92% from its all-time high (ATH) of $172.01 per share in November 2021, a day after its IPO.
According to Potter, Rivian will need to significantly improve its cash burn to trade above book value.
city-dwellers’s Take
Rivian aims to expand rapidly, which requires a lot of funding. The EV maker produced 24,337 vehicles last year, a significant rise from the 1,000 built by the end of 2021, and is aiming for another 50,000 this year.
Despite the aggressive expansion, Rivian is still losing money on each car it makes. The company burnt through $1.4 billion in cash in the fourth quarter, producing 10,020 EVs during the period.
Rivian’s CEO RJ Scarinje says the company’s drive toward profitability is equally important to ramping production. The EV maker has implemented several cost-cutting measures, including several rounds of layoffs and developing its own in-house Enduro drive units for the R1S and R1T models.
The company plans to launch its more efficient R2 platform in 2026, designed to simplify the production process and improve margins. Rivian has previously said it has funding through 2025.
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