Rivian Automotive (RIVN 6.10%) shares have plunged more than 50% year to date. Much of that stemmed from investor disappointment when the management's 2024 outlook revealed the company doesn't see any potential for production growth compared to last year.
But one Wall Street firm just initiated coverage on the the electric vehicle (EV) start-up saying the stock's drop now makes Rivian a buying opportunity. Jefferies analyst Philippe Houchois started coverage of the EV maker with a buy rating and a price target of $16. That's over 30% higher than where shares trade as of this writing, even after the stock jumped about 13% on Thursday on the news of its R2 platform announcement and buy rating.
The comparison to Tesla
In a general assessment of Rivian, Houchois compared it to EV leader Tesla. He noted that "Rivian has looked closest to Tesla in spirit, with its own software stack, strong brand identity, global potential, and similar growth pains."
Drilling down further, the analyst and his team believe the new R2 platform that Rivian officially announced on Mar. 7 will be key to its success. Houchois thinks the critical test for the company will be developing the new vehicle platform at a significantly lower cost than Rivian's existing R1 platform. He also wants to see meaningful reductions in production costs this year from design, purchasing, and manufacturing efficiencies.
Those are what the analyst sees as the challenges too. But with the company's existing large capital base, he believes the current stock price is too low to ignore. The Jefferies team expects Rivian to use plant shutdowns this year to spur cost cuts and for the company to achieve positive gross margin by the end of 2024. But Houchois warned the company still likely won't break even on a cash flow basis until at least 2027.
Investors taking Houchois' advice to buy now should realize that Rivian will require patience on its long road to profitability.
