The stock of Rivian Automotive (RIVN 1.37%) surged this morning, shooting as high as 8.1% at 10:24 a.m. ET before giving up some gains and trading up 3.8% as of 11:33 a.m. Monday.
Rivian received an analyst downgrade today. You'd have expected the electric vehicle (EV) stock to fall, but that's not the case.
Exane BNP Paribas initiated coverage of Rivian stock, but gave it an underperform rating with a price target of $35 a share. That's nearly 10% lower from Rivian stock's Friday closing price, but the market still drove the stock higher today.
One reason could be that despite an underperform rating, Exane BNP Paribas sees only limited downside in the stock from here over the next 12 months. Also, Exane called Rivian "a serious brand with true staying power," according to TheFly.com. That's notable as Rivian's R1T pickup truck is competing against the likes of Tesla's (TSLA 0.44%) Cybertruck and General Motors' (GM -0.34%) GMC Hummer EV.
But Exane believes Rivian's plans to increase prices of its vehicles suggests its original pricing for the R1T pickup and R1S SUV was "structurally unprofitable."
Rivian increased prices of its EVs in early March, but a public backlash forced it to backtrack on plans to increase prices for vehicles already booked before March 1. On the company's fourth-quarter earnings conference call, CEO Robert Scaringe even admitted it was a mistake to hike prices for already-committed pre-order customers.
Yet in its annual 10-K report filing on March 31, Rivian again hit a nerve with investors when it highlighted the severe cost and supply challenges facing it and said it might have to increase prices further in the near future to offset the steep rise in input costs. Barely weeks ago, Rivian guided for a production of only 25,000 vehicles in 2022 against analysts' estimates of around 40,000 units.
So why did Rivian shares rise today? It appears to be investors' notion that a rival's pain could be Rivian's gain. Reuters confirmed this morning that Tesla's Gigafactory in Shanghai has now been shut for two weeks amid the COVID-19 lockdown, despite the company's original plan to reopen it within four days.
Things could get worse before they get better. The China Passenger Car Association reported a loss of 20% in auto production in China during the recent coronavirus outbreak, according to the website CnEvPost. April is expected to be another tough month as several automakers have been forced to suspend operations, including Rivian's rival, Tesla.
Rivian's R1T, meanwhile, is attracting rave reviews from initial owners. Motor Trend, which earlier announced the R1T as its 2022 Truck of the Year, also tested the truck against the 2022 GMC Hummer EV on April 7 and called it an "overachiever" with a package "tough to beat."
Given the extent to which Rivian shares took a beating in recent weeks, EV investors were looking for the slightest triggers to bet on the stock. They found some today.