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Enthusiasm for Rivian Automotive’s stock has notably waned, as indicated by recent analysis in the electric vehicle (EV) sector.
Rivian Automotive (RIVN) saw its stock price drop by 4.8% as of early afternoon trading on Wednesday. This decline followed a downgrade from Morgan Stanley analyst Adam Jonas, who shifted his rating from “overweight”—essentially a buy recommendation—to “equal weight,” suggesting a hold position.
Jonas’ revision for Rivian was part of a larger reassessment of the entire U.S. automotive market. In addition to Rivian, he downgraded Ford (F) to equal weight and classified General Motors (GM) as underweight, which signals a sell recommendation. Jonas has expressed specific apprehensions regarding Rivian’s future performance.
The Challenges Ahead for Rivian
Jonas articulated that inflationary pressures have significantly escalated the prices of new vehicles, consequently hampering consumer purchasing capacity. This scenario has led to rising inventories and stagnating sales, which present challenges for U.S. automakers. Compounding this situation, numerous Chinese manufacturers are aggressively selling their electric vehicles at considerable losses, driven by an ongoing price war. Furthermore, China’s production of approximately 9 million cars that exceed local demand has resulted in increased exports, further impacting potential sales for American brands including Rivian.
Specifically concerning Rivian, Jonas emphasized that the company’s trajectory will heavily rely on its collaboration with Volkswagen, especially in providing “electrical architecture expertise” for Volkswagen’s models. However, he notes that fulfilling this obligation may necessitate an additional investment of $200 million to $300 million in capital expenditures annually, starting around 2026.
The Investment Outlook for Rivian
Currently, Rivian allocates about $1 billion per year for capital expenditures. With the anticipated supplementary investments, projections suggest Rivian’s capital expenses could reach approximately $1.3 billion by 2026 at the very least. Previously, Rivian had already forecasted capital spending of $1.2 billion for 2024 and $1.5 billion for 2025. Should these estimates hold true, Rivian’s capital expenditures might escalate to as high as $1.8 billion in 2026, reminiscent of its spending levels in 2021 before cost controls took effect.
The broader implication is that Rivian’s cost reduction initiatives now appear to be reversing. Despite potential financial support from Volkswagen, Jonas expresses concern that maintaining such a high degree of “capital intensity” could become unsustainable for Rivian.
Rich Smith does not hold any positions in the stocks mentioned. The Motley Fool has recommended General Motors and suggests the following options: long January 2025 $25 calls on General Motors. The Motley Fool operates under a disclosure policy.
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