Rivian Analyst Cuts Price Target In Half On Catalyst Concerns, Sees Longer-Term Potential When Electrification Shifts Into Overdrive

RBC Capital is out warning that Rivian Automotive Inc RIVN has run into a near-term roadblock on the road to profitability. 

The Rivian Takeaways: RBC Capital analyst Tom Narayan downgraded Rivian from Outperform to Sector Perform and cut the price target in half from $28 to $14, citing short-term concerns over limited catalysts. 

"R2 reveal and production ramp can help sentiment, but near-term we see limited catalysts to accelerate profitability and believe margins will remain constrained," the RBC Capital analyst wrote in a new note to clients. 

Fixed cost overhead will be the biggest driver of margin improvement for Rivian, but the company's plan leaves little room for acceleration, he said. 

Although the analyst sees the company reaching its 50,000 production target, he doesn't believe there is much room to really blow through guidance because the company is battling semiconductor availability. RBC Capital expects Rivian to produce 51,900 units this year. 

Other potential margin improvements could come from new tech, price increases and regulatory credits from the Inflation Reduction Act.

"But again, we believe these are already accounted for in consensus expectations and the ability to realize these benefits sooner is limited by supply chain," Narayan said. 

Why It Matters: RBC Capital doesn't expect price increases and the introduction of new tech to take hold until 2025, hence the downgrade and lower 12-month price target.

Although Rivian is up against near-term constraints, RBC Capital remains optimistic on the company longer term. Narayan expects Rivian to continue to scale production and improve margins. The R2, which is expected in 2026, will be the real driver for the company longer term, he said. 

Rivian remains well-positioned on a longer-term basis to capture market share as the industry moves toward electrification and the company focuses on vertical integration, driving higher margins at scale, Narayan said. 

See Also: As Rivian And Lucid Struggle, Elon Musk Says Volume Production, Achieving Positive Cash Flow Are 'Insanely Hard'

RIVN Price Action: Rivian has traded between $12.58 and $40.86 over a 52-week period. It's approaching 52-week lows on Wednesday.

The stock was down 5.3% at $12.72 at the time of writing, according to Benzinga Pro.

Photo: courtesy of Rivian.