By Michael Elkins
RBC Capital downgraded Rivian Automotive (NASDAQ:RIVN) to a Sector Perform rating (From Outperform) and cut their price target on the stock to $14.00 (From $28.00) as RBC analysts believe the company’s near-term catalysts are limited.
The analysts wrote in a note, “RIVN is well positioned to capture market share as the industry shift towards electrification, and we continue to believe its clean-sheet approach and vertical integration will allow for higher margins at scale. R2 reveal and production ramp can help sentiment, but near-term we see limited catalysts to accelerate profitability and believe margins will remain constrained.”
Fixed cost overhead is the single largest driver for margin improvement. RIVN is constrained on power semiconductor availability this year and while they have taken action to help mitigate the situation (added to supplier base and cut number of modules needed in a vehicle), The analysts believe upside to the 50k production target is limited (RBC models 51.9k).
Other drivers of margin improvement are cost reductions from the introduction of new technology and the positive impact of price increases from the move beyond March 2022 preorders, induction of higher priced variants, and IRA regulatory production credits. However, RBC Capital believes these are already accounted for in consensus expectations, and the ability to realize these benefits sooner is limited by supply chain.
Shares of RIVN are down 2.62% in pre-market trading on Wednesday.