For more than two months, shares in electric vehicle maker Rivian Automotive (NASDAQ:RIVN) have languished at prices in the low-to-mid teens per share. That’s a far cry from the more than $30 per share RIVN stock traded for as recently as December.
This former hot stock’s high-water mark was $172 per share, hit not too long after the company’s 2021 IPO. Yet while clearly in the stock market junkyard, many analysts do not believe that Rivian will stay there.
In fact, these optimists believe that the situation can only improve from here. However, taking a closer look, it’s hard to see why they have come to this conclusion. Instead, it seems as if the issues that have plagued the company since 2022 are likely to persist.
With this, you may want to fully exercise caution, instead of becoming cautiously optimistic. Here’s why.
| RIVN | Rivian Automotive | $14.20 |
Several Analysts Remain Upbeat About RIVN Stock
Earlier this month, Rivian released its latest quarterly results. For the quarter ending March 31, 2023, the EV maker missed on revenue, but reported narrower-than-expected losses. Of greater importance to the market, the company also maintained its production guidance for 2023.
Right after reporting these mixed results, members of the sell-side covering RIVN stock released their respective post-earnings research notes. As mentioned above, several analysts had positive takeaways from the latest earnings release.
As Seeking Alpha reported May 10, Barclay’s Dan Levy believes “the worst has passed” for the company. In his view, things are moving in the right direction for Rivian.
Levy also believes that the company has plenty of room to make further operational improvements, as the production ramp-up continues. With this, Levy gave shares the equivalent to a “buy” rating, albeit with just a $22 per share price target.
BofA’s John Murphy is another member of the sell-side who remains bullish. Citing many factors, Murphy believes that this EV company remains one of the top up-and-coming names in this sector.
The analyst rates RIVN a “Buy,” and gives it a $40 per share price target. Still, while their respective argument have substance, I’m still skeptical.
Why The Situation Could Worsen
The aforementioned analysts aren’t the only ones that believe RIVN stock will soon ride out of the junkyard. Plenty of investors believe that this will happen once production levels ramp up, and the company leaps forward to substantial sales and a path to profitability.
But just like how there are factors that may suggest Rivian’s fortunes could dramatically improve in the coming quarters, some factors point to the situation worsening from here. For one, although there are high hopes for the pending production ramp-up, it should be noted that, while up year-over-year, Rivian’s deliveries fell sequentially during the March quarter.
Those bullish on the stock may counter this by pointing to the company’s reservation backlog. Yet while its backlog totaled 114,000 vehicles last September, Rivian has since stopped providing this figure.
It’s unclear whether reservations have dropped off, whether because of frustration from production delays, or because of recent macro headwinds like high interest rates.
Even if the company produces (and sell) 50,000 of its electric trucks and vans this year, there’s another negative factor that could get worse, dampening investor sentiment. That would be the company’s still-heavy cash burn.
Bottom Line
Earlier this month, I argued about why cash burn is a big risk for Rivian. Even GAAP losses came in narrower-than-expected, negative operating cash flows did rise last quarter. As the ramp-up accelerates, so too could the rate in which the company goes through its existing cash position.
This may result in the company tapping into dilutive financing much sooner, and to a greater extent, than presently anticipated. If this ends up happening, it could mean yet another sell-off for shares.
I’m not alone in taking a far more bearish view on Rivian compared to the analysts mentioned above. Last quarter, famed investor George Soros’ firm unloaded much of what remained of its RIVN position.
While the next quarterly earnings could vindicate the optimists, as more backs the view RIVN stock stays in the junkyard, caution remains best for now.
RIVN stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.