Wolfe Research downgraded Rivian Automotive (NASDAQ:RIVN) to Peer Perform (From Outperform) and removed their $33.00 price target on the stock as the company prepares to ramp R1 capacity at their facility in Normal, IL.
During 2023, Rivian reached a significant turning point in its operations, overcoming production hurdles and increasing production from 9,400 vehicles in Q1 to 17,500 vehicles in Q4.
Analysts at Wolfe suggest that a majority of the vehicles manufactured in Q4 belonged to their R1 consumer platform, which includes the R1S SUV and R1T Pickup. This implies that the company has already attained the targeted annualized run rate of 65,000 vehicles.
The electric automaker plans to pause operations for several weeks in 2Q24 to realign their Normal, IL facility with the aim to boost R1 capacity from 65,000 to 85,000 vehicles, while simultaneously reducing Commercial Van capacity from 85,000 to 65,000 vehicles.
Following the shutdown and by Q4 2024, RIVN anticipates achieving a positive Gross Profit. Currently, estimates suggest that they are operating at a Gross Loss of approximately $1.8 billion.
“Reaching positive gross profit should significantly reduce this company's cash burn,” wrote analysts in a note, “effectively lengthening the company's runway towards the launch of a higher-volume / $40-$60k mid-size SUV in 2026.”
With a lower cost higher volume platform, Wolfe believes Rivian can work off a similar strategy to Tesla (NASDAQ:TSLA) after they released the Model 3.
Tesla was able to demonstrate its strengths in management, innovation, and vertical integration across various areas like computing, software, powertrains, direct sales, aftermarket service, and charging infrastructure. However, Rivian follows a slightly different strategy, aiming for a more high-end brand, likely leading to higher prices. Yet, analysts at Wolfe see similarities, noting that Rivian also has similar competitive advantages to Tesla.
Shares of RIVN are down 2.02% in early trading Thursday morning.