Rivian’s Hail Mary: New EVs Unveiled, But Is It Too Little, Too Late?
Rivian (NASDAQ:RIVN) shareholders got some much-needed good news on March 7 when it unveiled its R2 SUV at a company event in California. The news boosted RIVN stock by more than 10%.
However, the bigger surprise — the R2 unveiling was leaked in the week leading up to it — was the unveiling of a prototype of an R3 crossover EV that would be less than the $45,000 starting price of the R2. This is about $35,000 less than the RIS SUV and $30,000 less than its R1T pickup truck. In addition to the R3, there will be an R3X performance version.
That brings the total number of consumer EVs it will offer in the future to five. If it can get production on all five, that should lower its losses considerably.
The bigger news on the day might have been the announcement that it was scrapping its plans to build a new plant in George that would save the company over $2.25 billion in capital expenditures. Due to the plant decision, it will now produce the R2 at its Illinois facility.
It all seems so hopeful. Unfortunately, given the state of the EV market in the U.S. right now, there might be zero R2, R3, and R3X vehicles ever made.
If you don’t own RIVN stock, the news is not a reason to buy. Ignore these new vehicles’ potential and wait for tangible evidence that the company can produce them at scale without going under.
Here’s why.
A Dead Cat Bounce
Rivian reported Q4 2023 results on Feb. 21 after the markets closed. Its loss per share was $1.58, 23 cents worse than the analyst estimate, on $1.3 billion in revenue, meeting the consensus on the top line. Over the next two days, its shares fell 35%, at one point hitting an all-time low of $10.05, before recovering in the days following earnings.
With the March 7 bounce, the shares have recovered about half the losses since Feb. 21. Is that a silver lining? But man, it’s not a good time to lose as much money as it is.
On Feb. 23, MarketWatch reported that UBS analysts cut RIVN stock from a Buy to a Sell and reduced its target price by nearly 70% from $24 to $8, citing weak EV demand and an unprofitable business model.
“‘We had been optimistic on [Rivian’s] product and brand ultimately winning out,’ the analysts said. Now there’s a ‘more tepid’ U.S. demand for EVs and Rivian’s vehicles, risk to Rivian’s 2024 guidance and a likely substantial capital raise in the horizon, they said,” MarketWatch said.
In 2024, Rivian expects to produce 57,000 vehicles, about the same amount as in 2023, while generating an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $2.70 billion, or nearly $48,000 per vehicle.
Twenty-nine analysts cover its stock—sixteen rate it a Buy, nine Hold, and four a Sell. The target price is $17.80, 40% higher than where it’s currently trading.
At least the analysts have high hopes.
Losing Less Is Still Losing
The company’s $2.7 billion adjusted EBITDA loss in 2024 is one-third less than the $3.98 billion it lost in 2023. That’s a tempting figure to hang your hat on if you’re a Rivian bull.
However, it remains a company in need of a balance sheet makeover.
Rivian had $9.37 billion in cash and short-term investments at the end of December, down from $11.57 billion in 2022. Its total debt, including lease liabilities, was $5.12 billion, for net cash of $4.25 billion, down 56% from net cash of $9.76 billion a year earlier.
As the analysts at UBS said, it will likely have to raise a big chunk of capital shortly to get through 2024 and 2025 to bring the R2 to market. In 2023, it burned through $5.9 billion in free cash flow. Two more years of this kind of cash burn without new capital will be out of business.
Its Altman Z-Score is currently -0.64, which means it could face bankruptcy proceedings in the next 24 months.
It can’t afford to make mistakes in 2024 and 2025.
You can buy RIVN stock and the associated risk attached, or you can go with Li Auto (NYSE:LI) and its 3.34 Altman Z-Score. I’d go with the latter.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
