The stock of Rivian Automotive has experienced a drop in value following an analyst downgrade. In today’s fiercely competitive auto market, having a superior product alone is no longer sufficient.
Barclays analyst Dan Levy recently downgraded Rivian shares from Buy to Hold, and reduced the price target from $25 to $16. Although he lauded Rivian’s exceptional vehicles in his research report, Levy also noted worrisome signs of demand pressure within the electric-vehicle market. Such pressure can result in decreased pricing and increased losses for a company that still requires additional capital.
The United States witnessed a significant 46% increase in sales of all battery electric vehicles (EVs) in 2023. Forecasts from Cox Automotive and S&P Global suggest that this growth is expected to continue in 2024. However, it is important to acknowledge that the growth rate may not reach the same level as seen in 2023.
Looking specifically at Rivian, Wall Street estimates that the company will invest approximately $4.8 billion in expanding its business in 2024, following an expenditure of over $5 billion in 2023. Furthermore, analysts do not project positive free cash flow for Rivian until 2028.
By that time, unit sales are anticipated to reach nearly 300,000, a substantial increase from the approximately 50,000 units sold last year.
In premarket trading, Rivian stock experienced a decline of 3.2% to $16.14, while S&P 500 and Nasdaq Composite futures remained steady. Year-to-date, Rivian shares have declined by around 29%.
Following the downgrade, approximately 59% of analysts covering Rivian maintain a Buy rating for the shares, and the average analyst price target stands at approximately $24. Comparatively, the average Buy-rating ratio for shares in the S&P 500 is approximately 55%.
Investors and analysts will have the opportunity to assess Rivian’s performance and gauge demand prospects for the upcoming year when the company reports its fourth-quarter results on Feb. 21.