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Rivian Automotive (RIVN) has garnered significant attention following a billion-dollar cash injection from a new strategic partner, Volkswagen AG (VWAGY). This infusion of capital has not only bolstered Rivian’s liquidity but also underscored the electric vehicle (EV) manufacturer’s growing partnerships and strategic alignments within the industry. As Rivian backs its annual production guidance and forecasts a positive gross profit in the fourth quarter of 2024, along with positive EBITDA by 2027, the investment community has taken a keen interest in the company’s prospects.

Notably, Guggenheim also recently issued a new “Buy” rating for Rivian, further amplifying the positive sentiment surrounding the stock. This article will delve into the implications of the Volkswagen deal, assess Rivian’s financial outlook, valuation, growth prospects, and sentiment in the options market, and evaluate whether Rivian stock is a compelling buy at its current levels.

About Rivian Stock

Founded in 2009 and based in California, Rivian Automotive (RIVN), together with its subsidiaries, specializes in the design, development, manufacturing, and sale of electric vans, trucks, and sports utility vehicles, alongside providing software solutions, IT services, and repair and maintenance services. The company’s market cap currently stands at $14.58 billion.

Shares of Rivian have gained about 27.5% over the past month, but remain down 37.8% on a year-to-date basis.

Recent News for RIVN Stock

On July 2, Rivian announced that it produced 9,612 vehicles at its manufacturing facility in Normal, Illinois, during the second quarter, and delivered 13,790 vehicles in the same period, in line with the company’s expectations. Also, management reaffirmed its full-year guidance for annual production of 57,000 total vehicles.

On June 27, Rivian Automotive hosted its 2024 Investor Day event, where the company explained that the introduction of its Gen 2 model, along with commercial cost reductions and favorable commodity trends, is projected to decrease material costs by approximately 20%. Rivian also indicated it is on a path towards achieving positive gross profit in Q4 and positive adjusted EBITDA by 2027. A long-term financial goal is to achieve approximately 25% GAAP gross margin and a 10% free cash flow margin.

On June 25, Guggenheim analyst Ronald Jewsikow initiated coverage of Rivian with a “Buy” rating and an $18 price target. Jewsikow outlined a “credible path” to Rivian's target of breakeven gross profit margin in the fourth quarter. The analyst believes that achieving this milestone, along with subsequent profitability improvements, will act as a catalyst for the stock.

Guggenheim designates the R2/R3 platform as the “largest source of value” in its sum-of-the-parts analysis of Rivian, projecting a high-teens gross margin as the baseline scenario for this platform. It concludes that investing in the stock is “about underwriting the R2/R3, something we believe investors should be enthusiastic about.”

Rivian Soars on Volkswagen Investment, Proposed JV

On June 26, Rivian’s stock spiked more than 23% following the announcement of an initial $1 billion investment by Volkswagen, the world’s largest automotive manufacturer by revenue. Additionally, the companies plan to create a 50:50 joint venture aimed at developing next-generation electrical architecture and best-in-class software technology for EVs.

Under the terms of the deal, Volkswagen plans to allocate an additional $4 billion toward shares of Rivian and the joint venture itself. Volkswagen is expected to buy an additional $2 billion worth of Rivian common shares in two installments over the next two years, with pricing determined based on the 30-day VWAP preceding each investment date. Furthermore, Volkswagen will inject $1 billion directly into the joint venture and extend an additional $1 billion in the form of a loan.

As per Rivian’s shareholder letter, the investments from Volkswagen are anticipated to provide the capital needed to fund the company’s operations during the ramp-up of the R2 at its current facility in Normal, Illinois, and the development of its midsize platform at the forthcoming Stanton Springs, Georgia plant, thereby paving the way for “a path to positive free cash flow and meaningful scale.”

Obviously, Rivian emerges as a significant beneficiary of this deal, given the pressure from mounting losses while scaling production in a challenging market for electric vehicles. The Volkswagen deal substantially reduces liquidity and ramp-up risks for Rivian, bringing it closer to profitability and bolstering its competitive position against market leader Tesla (TSLA). Analysts including Susannah Streeter from Hargreaves Lansdown see the investment as a strong endorsement of Rivian’s future prospects.

On July 2, Rivian shares climbed about 7% following a report from Handelsblatt indicating that Volkswagen and Rivian are exploring a substantial expansion of their partnership, discussing potential collaboration in hardware and production.

How Did Rivian Perform in Q1?

Rivian Automotive reported its financial results for the first quarter of fiscal 2024 on May 7. First-quarter results surpassed management’s expectations and established a robust groundwork for the rest of the year, with the company prioritizing continued demand generation, enhancing cost and operational efficiency, progressing R2 development, and striving toward profitability. Notably, Rivian ranked as the fifth top-selling EV manufacturer in the United States in the first quarter of 2024, holding a market share of 5.1%.

Rivian reported an 81.5% year-over-year increase in revenue to $1.2 billion in Q1, driven mainly by higher deliveries, boosted by a vehicle leasing program, increased average selling prices, and sales of non-Rivian vehicle trade-ins, beating the Wall Street consensus by $30 million. RIVN’s total operating expenses in the quarter rose to $957 million from $898 million a year ago, mainly due to an increase in selling, general, and administrative expenses. Its first-quarter adjusted loss totaled $1.24 per share, missing analysts’ projections by $0.08.

Gross profit per vehicle delivered amounted to -$38,784, reflecting a negative impact of $9,346 per vehicle delivered, mainly attributed to various supplier and other costs incurred in advance of the new technology changes and parts integration into the R1 platform as part of its cost of revenue efficiency initiatives. Following the retooling upgrade, the company anticipates a considerable improvement in the material and conversion costs of its vehicles, and maintains confidence in achieving a modest gross profit in the fourth quarter of this year.

Management also aims to reduce gross inventory by over 25% within the next 1.5 years, and anticipates that lower variable costs will drive gross profit improvement throughout fiscal 2024. Rivian’s adjusted EBITDA for the quarter was negative $798 million, an improvement from the negative $1.02 billion reported a year ago.

On the balance sheet, Rivian held a cash position of $5.97 billion at the end of the first quarter. Including the capacity under its asset-based revolving credit facility, the company ended the quarter with $9.05 billion of total liquidity. However, cash burn of $1.5 billion remained high, due to increased accounts receivable and higher inventory balances. That said, management anticipates the negative working capital trends to reverse throughout the remainder of the year and beyond.

Looking ahead, management reaffirmed its 2024 adjusted EBITDA guidance of negative $2.7 billion. Also, capital expenditures guidance was revised down by $500 million to $1.2 billion. Management anticipates that the savings from this decision will also impact 2025 capital expenditures, projected to be around $1.5 billion.

Analysts tracking RIVN expect the company’s net loss to narrow year-over-year to $4.87 per share in fiscal 2024. Moreover, Wall Street anticipates Rivian’s revenue to rise 9.11% year-over-year to $4.84 billion in FY2024. Longer term, analysts expect the first positive EPS will emerge only in fiscal 2029.

In terms of valuation, the stock trades at 3.06 times forward sales, higher than the sector median of 0.86x. However, the stock trades at a lower valuation compared to its peer, Lucid Group (LCID), which is grappling with challenges in deliveries and profitability, with its multiple standing at 8.66x.

Options Market Sentiment on Rivian Stock

Looking at the September 20, 2024, option chain, we see a bid/ask for the $15.00 CALL option of $1.84/$1.89, and a bid/ask for the $15.00 PUT option of $2.05/$2.10. Note that this is the options strike closest to RIVN's stock price as of Wednesday's close. We can determine the anticipated price movement using the midpoint prices of these options:

2.08 (15.00 Put) + 1.87 (15.00 Call) = 3.95/14.65 = 26.9%

As can be seen above, based on the options, there’s an anticipated movement of approximately 27% in either direction from the $15.00 strike price by September options expiration when utilizing the long straddle strategy. That would place the stock in a trading range of $10.69 to $18.60 by the expiration date.

Additionally, there are 1.62 times more open calls than puts at the $15.00 strike price, with 14,787 open calls compared to 9,122 open puts. This indicates a bullish sentiment in the options market and suggests a higher likelihood of the stock price increasing.

What Do Analysts Expect For RIVN Stock?

Rivian stock has a consensus “Moderate Buy” rating on Wall Street. Out of the 23 analysts covering RIVN stock, 12 recommend a “Strong Buy,” one suggests a “Moderate Buy,” nine advise a “Hold,” and the remaining one analyst gives a “Strong Sell” rating.

The mean target price for RIVN stock is $17.27, indicating an upside potential of 17.9% from the current price.

The Bottom Line on RIVN Stock

I believe investors can consider initiating a position in RIVN at current levels. Volkswagen’s strategic equity investment was a significant victory for the company. The deal indicates enhanced liquidity and a higher likelihood of achieving its objectives related to developing and launching new models. Furthermore, sentiment in the options market indicates further upside potential for the stock.

On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. 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.