On Thursday, JPMorgan (NYSE:JPM) revised its outlook on Rivian (NASDAQ:RIVN) Automotive Inc (NASDAQ:RIVN), downgrading the electric vehicle maker's stock from Neutral to Underweight. The firm also lowered its price target on the shares to $11.00 from the previous $20.00. The downgrade comes after JPMorgan's assessment of Rivian's significantly slower growth trajectory and persistent large losses.
The downgrade was based on several factors, including Rivian's failure to meet its own sales and production targets, which also fell short of investor expectations. The company's recent guidance suggested a stagnant growth for 2024, hinting at potential demand issues that could delay any growth re-acceleration until at least 2026. Additionally, Rivian's profitability has not met plans, with gross profit generation and positive contribution margin consistently being postponed.
JPMorgan's revised estimates do not see Rivian achieving positive EBITDA until 2026 and free cash flow until 2027. With a projected EBITDA loss of $3.1 billion and a free cash outflow of $7.6 billion before a possible turnaround, the company may require another capital raise by 2026. The firm also expressed concerns over potential sales and profitability risks that Rivian may face, including competitive pressures from key rivals like Tesla (NASDAQ:TSLA).
The analysis suggested that Rivian could experience a period similar to Tesla's late 2022 situation, where it may need to reduce prices to maintain sales, potentially eroding gross margins. Unlike Tesla, Rivian does not have a buffer of strong gross margin profitability to fall back on. Despite the significant drop in RIVN's share price since its IPO, JPMorgan challenges the notion that the stock is inexpensive, especially when compared to automotive giants like GM and Ford (NYSE:F).
The lowered price target reflects JPMorgan's materially reduced estimates through 2027 and a decreased assumed long-term growth rate, due to the early stagnation in what was anticipated to be a period of robust expansion for Rivian.
InvestingPro Insights
As investors digest the recent downgrade of Rivian Automotive Inc (NASDAQ:RIVN) by JPMorgan, a closer look at the financial health and market performance of the company through InvestingPro's lens offers additional insights. With a market capitalization of $14.74 billion, Rivian's financials reflect a company in the growth phase, yet facing significant challenges.
InvestingPro data indicates that Rivian's revenue growth has been impressive over the last twelve months as of Q3 2023, with a 260.53% increase. However, this has not translated into profitability, as reflected by a gross profit margin of -64.09% and an operating income margin of -157.4%. These figures underscore the concerns raised by JPMorgan regarding Rivian's ability to generate profit and positive cash flow in the near term.
Two InvestingPro Tips highlight critical aspects of Rivian's financial situation. First, Rivian holds more cash than debt on its balance sheet, which can offer some solace to investors worried about the company's liquidity. Second, analysts do not anticipate the company will be profitable this year, aligning with JPMorgan's assessment that profitability may not be achieved until much later.
For investors seeking a deeper analysis, InvestingPro provides additional tips, including Rivian's cash burn rate and its stock price volatility. With the company trading near its 52-week low and analysts expecting significant sales growth in the current year, Rivian's stock presents a complex picture that warrants careful consideration. To explore these dynamics further, investors can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 10 additional InvestingPro Tips available that could provide further guidance on Rivian's prospects.
Understanding Rivian's position in the competitive EV market requires not only looking at its past performance but also considering its strategic moves and market potential. As the company strives to navigate its growth trajectory amidst the challenges, these InvestingPro insights can help investors make more informed decisions.
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