Some analysts aren’t optimistic about electric vehicle (EV) manufacturer Rivian Automotive (NASDAQ:RIVN). Why is that? There are various reasons, but the concerns often revolve around Rivian Automotive’s vehicle production and deliveries, compared to the amount of money the company is actually making on those vehicles. If Rivian continues to burn cash and maintain unacceptably low profit margins, RIVN stock could easily fall to new lows.
Like other EV makers, Rivian Automotive has to compete against automotive giant Tesla (NASDAQ:TSLA). That’s not an easy task, as Tesla maintains a strong leadership position with 65% of the U.S. EV market.
With Tesla reducing its vehicle prices a half-dozen times and Rivian Automotive losing some access to EV tax credits, the bull case for Rivian stock is getting harder to defend. With that in mind, let’s take a sample of some analysts’ outlooks on Rivian and see if we can form our own conclusion as prospective investors.
RIVN Stock Price Target Gets Cut in Half
It’s no secret that Rivian Automotive is a consistently unprofitable business. The automaker’s May 8 earnings report for 2023’s first quarter will almost certainly reveal another income-negative three months.
Nevertheless, analysts generally give RIVN stock a “moderate buy” rating, based on 11 buys, six holds and one sell rating on Wall Street. However, RBC Capital Markets analyst Tom Narayan definitely doesn’t fall into the bullish camp when it comes to Rivian Automotive.
For the near term, Narayan sees “limited catalysts to accelerate profitability” with Rivian. Additionally, the analyst believes that Rivian Automotive’s “margins will remain constrained.” Narayan’s point is duly noted, as Rivian anticipates producing 50,000 EVs this year and expects its capital expenditures (capex) to reach a whopping $2 billion.
Furthermore, Rivian Automotive expects to incur a deeply negative adjusted EBITDA totaling -$4.3 billion this year. It certainly sounds like Rivian will be in a challenging financial position, so perhaps it’s not too shocking that Narayan cut his price target on RIVN stock in half, from $28 to $14. The analyst also downgraded his rating on the stock from “buy” to “hold.”
Rivian Automotive’s Strategy Is Too Costly
In other words, Rivian Automotive won’t easily be able to compete with Tesla if Rivian is spending too much money to produce its EVs. This will certainly result in long-term financial problems for Rivian Automotive.
Analysts with Piper Sandler project that Rivian Automotive will need over $4 billion to fund its growth beyond the year 2025. Rivian did recently get an expansion of a credit agreement, but it’s not anywhere near $4 billion. In any event, the Piper Sandler analysts downgraded Rivian stock from “overweight” to “neutral.” They also slashed their price target on Rivian Automotive shares from $63 to $15.
Moreover, analysts with Battle Road Research have a number of concerns about Rivian Automotive. For one thing, it’s alarming that Rivian missed its EV production targets for 2022. In addition, Rivian Automotive has enacted multiple vehicle recalls. Plus, as I mentioned earlier, some of Rivian’s vehicles don’t quality for U.S. tax incentives.
“All of these factors dampen Rivian’s chances of success in the near-term,” concluded Battle Road Research analysts Ben Rose and Jonathan Rowe. Without assigning a specific price target, the Battle Road Research analysts downgraded Rivian Automotive shares from “hold” to “sell.”
The Outlook for Rivian Stock Is Grim
Don’t get the wrong idea. Investors shouldn’t base their financial decisions entirely on analysts’ opinions. Still, it’s a good idea to listen to what the experts have to say about Rivian Automotive. Frankly, it won’t be easy for Rivian to compete with Tesla and other EV manufacturers.
Also, Rivian Automotive will probably have to borrow a lot of money in order to continue its operations. On top of all that, Rivian’s margins could be limited for the foreseeable future. Given these considerations, it’s difficult to justify a long position in RIVN stock. Therefore, financial traders should find another automaker to consider investing in.
On the date of publication, David Moadel 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.