An influential supporter of the electric vehicle (EV) sector has recently tempered their enthusiasm for Rivian Automotive stock.
As of 1:20 p.m. ET on Wednesday, Rivian Automotive (trading symbol: RIVN) experienced a 4.8% decline in its stock value. This downturn followed a downgrade by Morgan Stanley analyst Adam Jonas, who moved the stock from an overweight (buy) rating to an equal weight (hold) rating.
Jonas’s downgrade of Rivian was part of a broader reassessment of the entire U.S. automotive industry. In addition to Rivian, Jonas downgraded Ford (trading symbol: F) to equal weight and reclassified General Motors (trading symbol: GM) to underweight (sell). However, Jonas expressed particular concerns about Rivian’s specific challenges.
Jonas observed that inflation has driven up new car prices, decreasing consumer purchasing power and causing inventory to accumulate as sales stagnate. This issue is exacerbated for U.S. automakers by the aggressive pricing strategies of many Chinese EV manufacturers, who are selling their vehicles at significant losses due to a price war. Furthermore, China is producing 9 million more cars annually than it can sell domestically, leading to increased exports that cut into potential sales for Ford, GM, and Rivian.
Regarding Rivian specifically, Jonas highlighted that the company’s future heavily depends on its partnership with Volkswagen. This collaboration aims to leverage Rivian’s “electrical architecture expertise” in Volkswagen’s vehicles. However, Jonas noted that fulfilling this commitment would necessitate an additional $200 million to $300 million—or more—in annual capital spending starting around 2026.
Currently, Rivian’s annual capital expenditure stands at $1 billion. With the additional spending, expectations would rise to approximately $1.3 billion by 2026. However, Rivian had already projected capital expenditures of $1.2 billion for 2024 and $1.5 billion for 2025. Thus, if these projections hold, Rivian’s capital expenditures could escalate to $1.8 billion by 2026, a figure reminiscent of its spending levels in 2021 before cost-control measures were implemented.
In summary, it appears that Rivian’s efforts to reduce costs may be reversing. Even with potential financial support from Volkswagen, Jonas expressed concerns that Rivian’s high “capital intensity” could become unsustainable.
Rich Smith, the author of this analysis, disclosed no positions in the stocks mentioned. The Motley Fool has recommended General Motors and suggests long January 2025 $25 calls on General Motors. Further disclosures can be found in The Motley Fool’s disclosure policy.