What happened
For the third day in a row, shares of electric truck start-up Rivian Automotive (RIVN 8.32%) were powering down Wednesday -- 6.4% lower, to be precise, as of 11:15 a.m. ET today. And that all adds up to a sizable 8.7% decline since the new year began.
A note last night from an analyst at Mizuho Securities laid out several positives about Rivian, but also included plenty of warnings on its risks.
Image source: Getty Images.
So what
In a note sent along by TipRanks.com, Mizuho analyst Vijay Rakesh laid out his buy theses on three electric vehicle (EV) stocks, including Rivian.
"We see RIVN as a pure play and strong early mover in the EV market with a focus on the higher-growth SUV and light truck market and a strong commercial vehicle roadmap beginning with Amazon," Rakesh said, referring to its deal to produce 100,000 delivery vans for Amazon.
He added that it has "a well-laid-out path toward further vertical integration" and is on track to sell as many as 102,000 electric trucks and generate $9 billion in sales in 2023 and as many as 600,000 units annually -- eventually.
But although Mizuho clearly loves Rivian stock, in the section on investment risks, the note points to increasing competition from new EV market entrants Ford Motor Company, General Motors, Stellantis, Volvo, and Lucid -- and of course market leader Tesla, which just reported that it sold nearly 1 million new electric cars in 2021! Foreign EV companies such as Nio are also described as a growing threat.
Now what
Meanwhile, Rivian is trying to navigate this changing market as a company that has never mass-produced automobiles before, the analyst says, and "could likely face operational risks as it ramps its first volume production." In short, investors have to be wary of potential production delays, supply chain bottlenecks, and product recalls as well.
On top of all that, Mizuho notes that it probably cost Tesla in excess of $14 billion to build out its production capacity to 500,000 cars per annum. (Indeed, from 2006 through 2021, S&P Global Market Intelligence records just under $16 billion in total capital expenditures at Tesla.)
Conclusion: If Rivian's growth path looks anything like Tesla's, investors should anticipate significant cash burn before the company gets anywhere near Mizuho's ultimate goal of 600,000 vehicles per year.
