What happened
Electric truck builder Rivian Automotive (RIVN +0.35%) short-circuited Monday morning in response to a lowered price target from investment bank Mizuho. As StreetInsider.com reports, the price-target cut actually came out on Friday last week but was reported today as a new cut on TheFly.com.
Mizuho cut its prediction for Rivian's stock price, one year out, from $80 per share to just $70, and as of 1:20 p.m. ET, the shares are down 4.2% in response.
NASDAQ: RIVN
Key Data Points
So what
By now, everyone is aware that curbs on freedom of movement in Shanghai, designed to halt the spread of Covid-19, have severely cut access to automotive parts and prevented Tesla's Chinese gigafactory from operating at full capacity. As Mizuho points out, though, the impact of parts shortages isn't limited to Tesla but is affecting Rivian as well.
Mizuho estimates that Rivian was able to build and deliver electric trucks at the rate of about 400 per month in the first quarter of 2022. That number only grew to 500 per month in the first two months of Q2. On the plus side, the analyst says deliveries may "potentially" have accelerated to 1,000 units in the final month of Q2. On the minus side, though, Mizuho also says that it's estimating deliveries of 3,900 units for the full quarter.
Why is that a problem? Consider: Five-hundred trucks delivered in April, 500 more in May, and 1,000 in June add up to 2,000 units -- not 3,900. Potentially, trucks built but not delivered in Q1 could make up the difference in Q2, but we won't know that for sure until Rivian reports its Q2 numbers (expected in early August).
Now what
Despite Mizuho assuring investors that it's still recommending buying Rivian stock -- and thinks the stock will more than double in price over the next year -- the analyst's questionable math suggests this is anything but certain. Indeed, the analyst's optimistic prediction seems to heighten the risk that Rivian will report a very large "miss" on its delivery numbers just a couple of months from now, with deleterious effect on the share price.
Longer term, this also calls into question Mizuho's prediction that Rivian will produce 22,000 electric vehicles (EVs) through the end of this year -- let alone the banker's belief that Rivian will be able to ramp production past 72,000 units in 2023. Unless Rivian is able to greatly accelerate production in the second half of this year, the company is likely to report deliveries of fewer than 4,000 or 5,000 EVs for the entire first half of the year, meaning that Rivian will need to produce more than 17,000 cars in the second half of the year (H2) -- several times as many as in H1 -- in order to hit the analyst's target.
I'm not saying it can't happen, but it doesn't seem likely -- and investors selling Rivian stock today seem to recognize that risk.
