With a gain of 27%, Rivian Automotive (RIVN) stock slightly outperformed the S&P 500 Index ($SPX) last year - but its returns trailed that of larger peer Tesla (TSLA), which doubled and recouped most of its 2022 losses. This year has also started on a negative note for Rivian, and the stock has lost over 21% YTD.
Here’s the full-year prediction for Rivian stock in 2024, and the various aspects that investors need to know about the startup electric vehicle (EV) company.
Why is Rivian Stock Dropping?
The recent fall in Rivian stock has been due to two reasons. First, growth stocks have been under pressure amid the spike in bond yields. The broader markets were also in the red in the first trading week of 2024, with tech and growth names bearing the brunt of the sell-off.
Also, Rivian missed its Q4 delivery estimates, even as its production was ahead of the company’s guidance. While the company did not explicitly specify the reason behind its deliveries trailing production by over 3,500 units in Q4, markets see it as a sign of weakening demand.
After the Q4 deliveries shortfall, Wolfe Research downgraded the stock from “Outperform” to “Peer Perform.” The brokerage also removed its $33 target price on RIVN and expressed concern over the near-term demand for its vehicles, especially as it does not have any new models lined up for the next couple of years.
RIVN Stock Prediction
Meanwhile, Wall Street analysts have rated Rivian stock as a “Moderate Buy.” Of the 23 analysts covering the startup EV company, 13 rate it as a “Strong Buy” and 3 as a “Moderate Buy.” The remaining 7 analysts rate the stock as a “Hold,” and its mean target price of $26.09 is a 41% premium to current prices. The Street-high target price of $40, meanwhile, implies the stock more than doubling from these levels.
Why Rivian Stands Out in the Crowded EV Space
The EV space is looking quite crowded and is undergoing a massive churn. Things might not get better anytime soon, and the price war, perennial cash burn, and unfavorable capital market conditions spell doom for many startup EV companies - which might either go bankrupt or merge to save the day.
I believe Rivian stands out among its EV peers on the back of its product strength, as its R1T pickup won MotorTrend's prestigious Truck of the Year 2022 award. The company’s cars have received good reviews from buyers, and its brand is much stronger than most, if not all, startup U.S. EV peers.
Also, while many EV companies don’t have the cash to survive beyond 2024, Rivian had $9 billion on its balance sheet at the end of September, which should take care of the company's cash needs until at least 2025. The upcoming plant in Georgia and the launch of the affordable R2 models are also long-term growth drivers.
Rivian’s Short-Term Outlook Is Hazy
While Rivian’s long-term forecast looks positive, the near-term outlook is quite hazy. The price war might not be over anytime soon, as U.S. market leader Tesla prioritizes deliveries over profits. Startup EV players don’t have the same luxury as Tesla, which still commanded an operating margin of 8% in Q3 despite massive price cuts.
The “demand” question is another short-term headwind for the EV industry, and things might get worse if the U.S. economy tips into a recession. While brokerages have cut the odds of a U.S. recession in 2024, the economy is widely expected to slow down considerably this year after the surprisingly strong growth last year.
Finally, the price action of growth names like Rivian has a good degree of correlation with the Fed’s policy. If the central bank does not oblige the market with expected rate cuts in 2024, growth stocks might feel the heat.
Should You Buy the Dip in Rivian Stock?
The EV space, and especially startup names, are not for the risk-averse, as the sector could see more turmoil in the short term. However, I believe Rivian will emerge as among the “last men standing” in the EV industry. While Rivian stock might still fall from these levels in the short term amid the challenging macro environment, it has the right mix of ingredients to survive the current EV industry slump.
The stock trades at a next-12 months price-to-earnings multiple of 3.25x, which - while not outright cheap - is not unreasonable, either. Overall, I believe that Rivian is among the buy-the-dip candidates in the EV space, and the stock could reward patient investors in the long term.
On the date of publication, Mohit Oberoi had a position in: RIVN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
