Investing.com -- Rivian (NASDAQ:RIVN) shares dropped more than 6% Friday after the company cut its full-year production forecast and revealed a significant setback in its production plans due to a shortage of a shared component used in both its R1 and RCV platforms.
Rivian revealed it now anticipates full-year production to be between 47,000 and 49,000 vehicles, down from its previous forecast of 57,000 vehicles.
While Rivian managed to produce 13,157 vehicles and deliver 10,018 during the third quarter of 2024, the supply chain issue has escalated in recent weeks, impacting overall output.
Despite the production challenges, Rivian remains optimistic about its delivery outlook for the year. The company reaffirmed its expectation of low single-digit growth in deliveries compared to 2023, which is estimated to be between 50,500 and 52,000 vehicles.
The revised forecast indicates that the company now anticipates producing fewer vehicles than it did last year.
There has been a slowdown in demand for electric vehicles as high interest rates and elevated inflation have prompted consumers to seek more affordable alternatives.
The increasing cost of EV ownership, coupled with economic uncertainty, has caused some potential buyers to reconsider, opting instead for lower-cost options in the current environment.
Morgan Stanley recently revised its outlook on the U.S. auto industry, lowering it from Attractive to In-Line, citing headwinds such as rising inventory levels, affordability concerns, and increasing competitive pressure from China.
As part of its sector review, Morgan Stanley downgraded Rivian from Equal-weight to Underweight, as well as other key automakers. The bank explained that the downgrade reflects its “incorporation of the capital intensity of AV/ADAS, which may be required to fulfill the technological underpinnings that attracted Volkswagen (ETR:VOWG_p) as a JV partner.”
Morgan Stanley also lowered its target for the stock to $13.00 from $16.00 per share.
Following the news, analysts at RBC Capital said in a note that the lower delivery print in Q3 is concerning as it highlights softening demand.
"Competition on BEVs in the US is intensifying, especially from GM now with a $27K priced Equinox which is selling very well and boasts 300 miles of range," stated RBC. "This puts into question how competitive Rivian's mid-size R2 will be given it will be priced at $45K and offer lower range. We expect shares to trade sharply lower today. Some investors we spoke to think Rivian will manage to achieve the Q4/24 gross profit positive status by managing some accounting items but then see this drop in Q1/25."
Meanwhile, Truist explained that while the company had previously discussed the supplier issue associated with a third-party component in the company's in-house Enduro motors, "the magnitude of the impact is likely to surprise investors."
"While a reiterated delivery guide for the year may provide investors some level of comfort on the demand side of the equation, concerns on RIVN's production & gross margin trajectory given lack of color into the nature/magnitude/expected timeline of the component shortage are likely to weigh on shares," said the firm. "While the company made no mention of the target for positive GMs by YE, we would now see this as unlikely assuming the shortage doesn't improve in the very near term."