Rivian experienced a tumultuous year, but new analysis suggests substantial growth opportunities ahead for the electric vehicle manufacturer. Benchmark analyst Michael Legg asserts that Rivian is poised to capture significant market share in the extensive EV sector, which is projected to expand dramatically in the coming years, according to a Yahoo! Finance report.
Rivian’s potential growth in electric vehicle market examined
The growth potential for electric vehicles in the U.S. is significant. The Edison Electric Institute (EEI) forecasts that the number of EVs on American roads will soar from 4.5 million in 2023 to 78.5 million by 2035, representing a compound annual growth rate (CAGR) of 26.9%. By 2050, it is estimated that 89% of all U.S. vehicles will be battery-electric vehicles (BEVs) or plug-in hybrids, a stark increase from the current figure of 12%.
This year’s market has faced delays in EV launches from several major automakers, resulting in a deceleration of growth. For instance, U.S. EV sales increased by a mere 7.3% in the first half of 2024, a significant drop from the 47% growth recorded in the same period of 2023. However, analysts anticipate that domestic EV production will rebound in 2025 and gain momentum through 2026 and 2027, fueled by falling average selling prices (ASPs) and an expanded charging infrastructure.
Legg highlights Rivian as a leader among emerging EV companies due to several key advantages. He points to the company’s in-house manufacturing capabilities and the success of its tailored software, validated through prominent partnerships with industry giants Amazon and Volkswagen. Rivian’s agreement with Amazon, which entails supplying 100,000 electric delivery vans (EDVs) by 2030, has seen about 15,000 units delivered as of now.
In November 2023, Rivian ended its exclusivity deal with Amazon and announced a partnership with AT&T. Legg suggests this diversification in commercial contracts will create a solid revenue foundation as Rivian seeks to expand its consumer vehicle lineup. Rivian has also entered into a joint venture with Volkswagen worth up to $5.8 billion. This partnership will utilize Rivian’s proprietary software and electronic control units (ECUs), bolstering its financial stability and operational growth.
The financial implications of Rivian’s collaborations are noteworthy. Analysts, including Legg, believe that the funding from the Volkswagen deal will be sufficient to support Rivian’s operational expenses and expansion objectives. Additionally, VW’s industry connections will enhance Rivian’s supplier negotiations and engineering efficiencies, marking a pivotal step for the company’s long-term positioning in the EV market.
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Based on these developments, Legg initiated coverage of Rivian with a Buy rating and a price target of $18. If this target is reached, investors could see a return of approximately 25% within the next year. The broader Wall Street perspective on Rivian reflects a blend of optimism and caution. Currently, the stock holds a Moderate Buy consensus rating, stemming from 9 Buy, 10 Hold, and 1 Sell recommendations. The average price target stands at $15, indicating a modest upside of about 4% from current levels.
This improved outlook follows Rivian’s efforts to cut costs significantly. The company has taken steps to reduce its bill of materials and streamline vehicle systems, achieving a 41% decrease in cash consumption sequentially in the second quarter of the year. This focus on cost efficiency aligns with expectations of Rivian reaching positive gross profit in the current quarter. Legg reinforces the viability of Rivian’s business model, particularly as the company anticipates a modest gross profit in Q4.
Meanwhile, Rivian’s robust balance sheet remains a point of reassurance for investors. With over $6 billion in reserves, analysts believe that the company possesses the necessary capital to attain cash flow breakeven status. Rivian’s strategic partnerships and financial foundations position it favorably in a rapidly evolving electric vehicle landscape.
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Featured image credit: Rivian
