What happened
Shares of electric vehicle (EV) upstart Rivian Automotive (NASDAQ: RIVN) were rising on Monday, up 6.4% as of 1:27 p.m. ET.
The rise appears to be attributable to a fellow electric vehicle competitor's big move. EV rival Fisker rose more than 30% at one point this morning, thanks to its earnings release and projection for positive 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA).
Therefore, investors may be looking forward to Rivian's release tomorrow, in which it may share some positive news as well. In addition, Rivian is bouncing off of a bad week in which many growth stocks were sold off due to fears over inflation and interest rates. Finally, Rivian received two different opinions from Wall Street analysts last Friday -- one positive, but another more muted.
So what
Last Friday, Wells Fargo analyst Colin Langan issued a note on Rivian, maintaining his neutral rating on shares, but lowering his price target from $32 to $18 -- flat relative to Rivian's $18 price today. On the other hand, Mizuho analyst Vijay Rakesh kept his buy rating on Rivian, although he also lowered his price target, from $50 to $42.
Langan lowered his expectations for deliveries, given the company's recent supply chain hangups and planned downtime in 2023 to expand capacity at its Normal, Illinois, factory. Furthermore, Langan fears the company may need to have another capital raise in order to fund its battery component ambitions.
One wonders if a capital raise would really be necessary, as Rivian had $13.8 billion of cash on its balance sheet last quarter. Of course, the company is also likely to burn through about $7.2 billion in cash in 2022, with an uncertain outlook for 2023. If the company's deliveries don't ramp up as expected in 2023, the cash burn could also be significant this year.
Yet Rakesh has a more optimistic take. While Rivian is burning through cash, Rakesh believes the company is executing better than some of its other new EV rivals on a comparative basis in a difficult environment, with a bigger cash cushion. Still, he cites lower valuations from the higher rate environment and uncertainty over consumer demand in the current year as reasons for the price target drop.
Now what
The outlook for electric vehicles in the U.S. appears bright over the long term, which means beaten-down EV names such as Rivian and its upstart peers may be attractive speculations. This is especially true as the Biden administration has ramped up incentives to make it cheaper for consumers to buy EVs and increased infrastructure spending to make EVs easier and more convenient to own.
On the other hand, the near term is a much more difficult question. The rise in interest rates and lower stock prices mean these companies may have to dilute their shareholders significantly if they need more near-term funding, and that dilution could harm their long-term value. Stocks like Rivian and rivals Fisker, Lucid Group, and others are all in that camp.
That's why Fisker's projection for positive EBITDA this year, and therefore less potential dilution, caused such a big rise in the stock price. Beyond the fourth-quarter results, Rivian shareholders should be closely listening to management's outlook for cash burn and the potential for another capital raise on tomorrow's release.
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