Morgan Stanley has adjusted its stance on Rivian (NASDAQ:RIVN) Automotive Inc (NASDAQ: RIVN), downgrading the stock from Overweight to Equalweight and lowering the price target to $13 from $16.
The downgrade was prompted by new assessments regarding the capital required for the development of autonomous vehicle technology, which is expected to be a significant factor in Rivian's partnership with Volkswagen (ETR:VOWG_p).
The analyst from Morgan Stanley highlighted the increased capital expenditures anticipated for Rivian, which are now estimated to rise by $200-300 million annually starting in 2026. This revision reflects the costs associated with advancing autonomous vehicle and driver-assistance systems (AV/ADAS) technologies.
These systems are considered crucial for the company's collaboration with Volkswagen and are expected to underpin the technological advancements that initially attracted the partnership.
Rivian's management has previously provided guidance for capital expenditures, projecting $1.2 billion for 2024 and $1.5 billion for 2025. The new estimates by Morgan Stanley suggest that the company's spending on technology related to AV/ADAS will be higher than initially anticipated, thus impacting the firm's valuation of Rivian's stock.
In other recent news, Rivian Automotive has been dealing with several recent developments. In the third quarter, the company faced supplier shortages that affected the production of its second-generation vehicles.
This resulted in slower delivery rates and internal debates about the merits of outsourcing versus vertical integration. However, Rivian's CFO Claire McDonough has indicated that the focus for the company's upcoming financial reporting will shift towards variable cost improvements, following measures implemented during the second quarter's shutdown.
Rivian's joint venture with Volkswagen is expected to yield cost benefits and provide liquidity. This partnership is part of Rivian's broader investment strategy, which has been reaffirmed by Jefferies with a Buy rating and a $17.00 price target.
Goldman Sachs also maintained its neutral rating on Rivian, with a steady price target of $13, while highlighting potential growth drivers such as the introduction of the R2 platform and the expansion of commercial vehicle sales.
Rivian has also faced some setbacks, including a fire at its Illinois plant which resulted in damage to several electric vehicles, and a pause in the production of its electric delivery vans due to a parts shortage. Despite these challenges, the company remains optimistic about recovering lost production time and has plans to build another assembly plant in Georgia.
InvestingPro Insights
As Rivian Automotive Inc (NASDAQ:RIVN) faces a downgrade from Morgan Stanley, it's important to consider the company's financial health and market performance. According to InvestingPro data, Rivian holds a market cap of $12.01 billion, which reflects its standing in the electric vehicle industry. However, the company's gross profit margin over the last twelve months as of Q2 2024 sits at a negative 41.1%, underlining the challenges Rivian faces in achieving profitability. This is further exemplified by the company's price-to-earnings (P/E) ratio, which remains negative at -2.38, indicating that investors are waiting for Rivian to turn its innovative technology into financial success.
InvestingPro Tips suggest that Rivian holds more cash than debt on its balance sheet, providing some financial stability. Yet, the company is quickly burning through cash, which aligns with Morgan Stanley's concerns about increased capital expenditures for autonomous vehicle technology. Moreover, with analysts revising earnings downwards and the stock price being volatile, Rivian's financial journey seems to be on a rocky path. It's also noteworthy that analysts do not anticipate the company will be profitable this year, a critical factor for investors to consider.
For readers looking to delve deeper into Rivian's financial metrics and gain additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/RIVN. These tips could provide a more comprehensive understanding of Rivian's financial health and market prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.