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Jefferies highlights variable cost improvements as focus for Rivian Automotive shares in Q3

EditorAhmed Abdulazez Abdulkadir
Published 23/09/2024, 10:50 pm
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On Monday, Jefferies reaffirmed its Buy rating and $17.00 price target for Rivian (NASDAQ:RIVN) Automotive Inc (NASDAQ:RIVN). The endorsement follows a recent visit to the electric vehicle manufacturer's Palo Alto facility. During the visit, Rivian's CFO Claire McDonough discussed the company's broader investment strategy, including its software joint venture with Volkswagen (ETR:VOWG_p) (VW) and the current supplier shortages affecting the production ramp of their second-generation vehicles.

The CFO addressed the challenges Rivian is facing with a supplier that has led to a component shortage for the new Enduro motor. This shortage is causing internal debates at Rivian regarding the merits of outsourcing versus vertical integration. Although the impact of these issues was not quantified, the company is expected to provide more details with the release of its third-quarter results.

Rivian's management has indicated that the ramp-up of the R1 Gen 2 is progressing slower than expected. This, combined with the limited inventory of both Gen 1 and Gen 2 models, may result in slower delivery rates. The analyst from Jefferies anticipates that reduced fixed cost coverage due to these challenges will likely affect the company's gross margin.

The focus for Rivian's upcoming financial reporting is predicted to shift towards variable cost improvements. This is a result of measures implemented during the second quarter's shutdown, which are expected to lead to material improvements in the third quarter. Despite concerns that production issues may postpone Rivian's target to reach gross margin breakeven in the fourth quarter, the analyst remains optimistic about the company's cost management efforts.

In other recent news, Rivian Automotive has been the subject of various developments. Goldman Sachs (NYSE:GS) reiterated its neutral rating on Rivian, maintaining a price target of $13. The firm's analysis underscored Rivian's 2024 goals of modest single-digit volume growth and the challenges it faces, such as supply chain issues. The potential for a joint venture with Volkswagen was also noted, which could provide liquidity and yield cost benefits for Rivian.

In the second quarter, Rivian highlighted advancements in production, strategic partnerships, and a path to profitability. The company is ramping up production for its second-generation R1 vehicles and developing the R2 platform, set to launch in 2026. A joint venture with Volkswagen is expected to bring cost savings, operating efficiencies, and future revenue streams.

Rivian recently faced setbacks including a fire at its Illinois plant resulting in damage to several electric vehicles and a pause in the production of its electric delivery vans due to a parts shortage. However, the company remains optimistic about recovering lost production time and plans to build another assembly plant in Georgia.

InvestingPro Insights


As Rivian Automotive Inc (NASDAQ:RIVN) navigates production ramp challenges and works towards improving its cost structure, real-time data from InvestingPro gives investors a snapshot of the company's financial health and market sentiment. Rivian holds more cash than debt on its balance sheet, which may provide some comfort to investors concerned about the company's cash burn rate. However, it's critical to note that Rivian is quickly burning through cash, and analysts have revised their earnings downwards for the upcoming period, signaling potential headwinds.

InvestingPro data shows a market cap of $11.81 billion, reflecting the scale of Rivian's operations within the electric vehicle sector. Despite a significant revenue growth rate of 68.2% over the last twelve months as of Q2 2024, the company's gross profit margin stands at a negative 41.1%, underscoring the cost challenges mentioned. The stock price has experienced volatility, with a 1-week price total return of -11.29%, which may concern short-term investors.

For those looking to delve deeper into Rivian's financials and market performance, InvestingPro offers additional insights, including the fact that the company is not expected to be profitable this year and has suffered from weak gross profit margins. There are 12 more InvestingPro Tips available for Rivian, which can be accessed for a more comprehensive analysis of the company's outlook and investment potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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