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Is Rivian (RIVN) a Buy Post VWAGY Deal & Investor Day Insights?
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U.S. electric vehicle (EV) maker Rivian Automotive (RIVN - Free Report) hogged the limelight last week with two major developments. First, it announced a massive deal with Germany-based auto giant Volkswagen (VWAGY - Free Report) . Second, it held its 2024 Investor Day, focusing on its plans for cost-cutting and production efficiency.
Shares of Rivian got an immediate boost from a capital injection decision by Volkswagen, with shares rallying 23% the following day. By the end of the week, the stock erased some of the gains as investors digested the complex financial structure of the deal, which could be dilutive for existing shareholders. Nonetheless, the stock was up roughly 20% last week.
In spite of that, RIVN stock is down 43% year to date, underperforming the industry. Given that the VWAGY deal could prove to be a major game changer for Rivian, is it an opportune time to buy Rivian shares at current levels? Before discussing that, let’s delve into the specifics of the Volkswagen deal and the key takeaways from Rivian's Investor Day.
Image Source: Zacks Investment Research
Rivian to Secure $5B from Volkswagen
Initially, Volkswagen will inject $1 billion into a new joint venture with Rivian, focusing on shared EV technology and software, with plans for an additional $4 billion investment after the venture is established. The deal is expected to bolster Rivian's operations and expedite its production plans. Volkswagen’s investment, combined with Rivian's existing cash reserves, is projected to support the EV maker’s growth until it achieves positive free cash flow and scales meaningfully.
Notably, Volkswagen will be the second legacy automaker to invest in Rivian. Previously, Ford (F - Free Report) held a roughly 12% stake alongside Amazon (AMZN - Free Report) but exited in 2023 after canceling plans to co-develop EVs.
The VWAGY deal, expected to close in the fourth quarter of 2024, is a significant win for Rivian, which is navigating substantial losses while scaling up production of its electric trucks and SUVs. The partnership will accelerate the production of Rivian's upcoming R2 model in Illinois and facilitate the development of a midsize platform in Georgia. Besides providing financial stability, the collaboration will also leverage VWAGY’s extensive manufacturing expertise, potentially lowering production costs and speeding up timelines for Rivian.
Image Source: Rivian Automotive
Key Takeaways From Investor Day
On its Investor Day, Rivian reaffirmed its 2024 production guidance of 57,000 units. It envisions second-quarter 2024 production and deliveries of 9,100-9.300 units and 13,000-13,300 units, respectively.
One of the most compelling revelations was Rivian's cost-reduction strategy. The introduction of the Gen 2 R1 model is expected to reduce material costs by approximately 20% through the balance of the year. Further, it expects to cut costs by around 45% with the upcoming R2 model compared to the second-generation R1.
Image Source: Rivian Automotive
Rivian aims to achieve gross profit by the fourth quarter of 2024 and positive adjusted EBITDA by 2027, with long-term targets of around 25% GAAP gross margin and a 10% free cash flow margin.
New Models on the Way but Challenges Persist
Rivian’s revenues are expected to be driven by new vehicle launches, such as the R2, a mid-sized electric SUV priced around $45,000. It is a more affordable option compared to its original models priced in the $70,000+ range. This could attract a broader consumer base. Additionally, the R2 is expected to enter the European market in 2026 and the U.K. in 2027, further expanding Rivian's market reach. Its upcoming R3 model, an even smaller SUV priced at about $37,000, is projected for launch in 2027. This model could be another significant growth driver, appealing to consumers in markets where smaller vehicles are preferred. The Zacks Consensus Estimate for the company's 2024 and 2025 revenues implies a year-over-year uptick of 7% and 36%, respectively.
However, Rivian faces several risks. Despite the Volkswagen investment, Rivian will continue to face significant cash burn amid expansion plans and operations ramp-up. It is expected to continue posting losses for the next couple of years as it tries to scale production in a challenging EV market. The Zacks Consensus Estimate for 2024 and 2025 bottom line is pegged at a loss of $4.02 and a loss of $1.93 per share, respectively. The consensus mark for 2025 loss per share has widened by 21 cents. With the EV market being highly competitive, potential threats from established automakers and emerging Chinese manufacturers could also pose challenges.
Is a Premium Valuation Justified?
RIVN is currently trading at a forward sales multiple of 2.40, below its median of 3.56 over the last five years but still at a premium compared to the broader industry. The stock has a lot to prove now. The underlying fundamentals aren’t strong enough currently despite the stock coming off its historically high valuations. As such, the stock has a Value Score of F.
Image Source: Zacks Investment Research
Wrapping Up
The VWAGY deal validates Rivian and its products, presenting a strong chance for the company to reach profitability in two to three years, thanks to cost-cutting measures and the launch of promising new products. The expansion into Europe and other parts of the world could be additional growth drivers. The launch of R2 and R3 could be significant for Rivian's growth trajectory. However, investors shouldn’t overlook the company’s history of losses and the likelihood of continued losses in the near term. Rivian faces big losses and EV demand issues despite making progress on costs and building market-leading products. Its valuation is also high compared to the broader industry.
As such, we believe investors should not rush into buying the stock now. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
Image: Bigstock
Is Rivian (RIVN) a Buy Post VWAGY Deal & Investor Day Insights?
U.S. electric vehicle (EV) maker Rivian Automotive (RIVN - Free Report) hogged the limelight last week with two major developments. First, it announced a massive deal with Germany-based auto giant Volkswagen (VWAGY - Free Report) . Second, it held its 2024 Investor Day, focusing on its plans for cost-cutting and production efficiency.
Shares of Rivian got an immediate boost from a capital injection decision by Volkswagen, with shares rallying 23% the following day. By the end of the week, the stock erased some of the gains as investors digested the complex financial structure of the deal, which could be dilutive for existing shareholders. Nonetheless, the stock was up roughly 20% last week.
In spite of that, RIVN stock is down 43% year to date, underperforming the industry. Given that the VWAGY deal could prove to be a major game changer for Rivian, is it an opportune time to buy Rivian shares at current levels? Before discussing that, let’s delve into the specifics of the Volkswagen deal and the key takeaways from Rivian's Investor Day.
Image Source: Zacks Investment Research
Rivian to Secure $5B from Volkswagen
Initially, Volkswagen will inject $1 billion into a new joint venture with Rivian, focusing on shared EV technology and software, with plans for an additional $4 billion investment after the venture is established. The deal is expected to bolster Rivian's operations and expedite its production plans. Volkswagen’s investment, combined with Rivian's existing cash reserves, is projected to support the EV maker’s growth until it achieves positive free cash flow and scales meaningfully.
Notably, Volkswagen will be the second legacy automaker to invest in Rivian. Previously, Ford (F - Free Report) held a roughly 12% stake alongside Amazon (AMZN - Free Report) but exited in 2023 after canceling plans to co-develop EVs.
The VWAGY deal, expected to close in the fourth quarter of 2024, is a significant win for Rivian, which is navigating substantial losses while scaling up production of its electric trucks and SUVs. The partnership will accelerate the production of Rivian's upcoming R2 model in Illinois and facilitate the development of a midsize platform in Georgia. Besides providing financial stability, the collaboration will also leverage VWAGY’s extensive manufacturing expertise, potentially lowering production costs and speeding up timelines for Rivian.
Key Takeaways From Investor Day
On its Investor Day, Rivian reaffirmed its 2024 production guidance of 57,000 units. It envisions second-quarter 2024 production and deliveries of 9,100-9.300 units and 13,000-13,300 units, respectively.
One of the most compelling revelations was Rivian's cost-reduction strategy. The introduction of the Gen 2 R1 model is expected to reduce material costs by approximately 20% through the balance of the year. Further, it expects to cut costs by around 45% with the upcoming R2 model compared to the second-generation R1.
Image Source: Rivian Automotive
Rivian aims to achieve gross profit by the fourth quarter of 2024 and positive adjusted EBITDA by 2027, with long-term targets of around 25% GAAP gross margin and a 10% free cash flow margin.
New Models on the Way but Challenges Persist
Rivian’s revenues are expected to be driven by new vehicle launches, such as the R2, a mid-sized electric SUV priced around $45,000. It is a more affordable option compared to its original models priced in the $70,000+ range. This could attract a broader consumer base. Additionally, the R2 is expected to enter the European market in 2026 and the U.K. in 2027, further expanding Rivian's market reach. Its upcoming R3 model, an even smaller SUV priced at about $37,000, is projected for launch in 2027. This model could be another significant growth driver, appealing to consumers in markets where smaller vehicles are preferred. The Zacks Consensus Estimate for the company's 2024 and 2025 revenues implies a year-over-year uptick of 7% and 36%, respectively.
However, Rivian faces several risks. Despite the Volkswagen investment, Rivian will continue to face significant cash burn amid expansion plans and operations ramp-up. It is expected to continue posting losses for the next couple of years as it tries to scale production in a challenging EV market. The Zacks Consensus Estimate for 2024 and 2025 bottom line is pegged at a loss of $4.02 and a loss of $1.93 per share, respectively. The consensus mark for 2025 loss per share has widened by 21 cents. With the EV market being highly competitive, potential threats from established automakers and emerging Chinese manufacturers could also pose challenges.
Is a Premium Valuation Justified?
RIVN is currently trading at a forward sales multiple of 2.40, below its median of 3.56 over the last five years but still at a premium compared to the broader industry. The stock has a lot to prove now. The underlying fundamentals aren’t strong enough currently despite the stock coming off its historically high valuations. As such, the stock has a Value Score of F.
Image Source: Zacks Investment Research
Wrapping Up
The VWAGY deal validates Rivian and its products, presenting a strong chance for the company to reach profitability in two to three years, thanks to cost-cutting measures and the launch of promising new products. The expansion into Europe and other parts of the world could be additional growth drivers. The launch of R2 and R3 could be significant for Rivian's growth trajectory. However, investors shouldn’t overlook the company’s history of losses and the likelihood of continued losses in the near term. Rivian faces big losses and EV demand issues despite making progress on costs and building market-leading products. Its valuation is also high compared to the broader industry.
As such, we believe investors should not rush into buying the stock now. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
Rivian currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.