Rivian over-delivered and electrified the market; shares surge

Key Points

• Rivian gave the market what it needed, better-than-expected results and improved guidance. 
• The critical detail is the exclusivity contract with Amazon for Class 4 vans; now ended. 
• Shares are up, confirming support at a higher level; the question is if the market follows through and leads this stock into reversal.

Rivian NASDAQ: RIVN caught the market’s attention when it announced Q3 deliveries and set the date for earnings reporting. The company outpaced expectations and reiterated its guidance, which was viewed cautiously by some. That view was affirmed with the Q3 report, which includes multiple catalysts for higher share prices. Among them are outperformance, a narrowing loss, improved guidance, and the news that could launch this stock to multi-year highs. Rivian ended its exclusivity contract with Amazon. 

Rivian ended its exclusivity contract with Amazon, allowing it to sell EV delivery vans to the broad market. This news opens up a $160 billion market growing at a mid-single-digit CAGR that is rapidly turning to EVs. Class 4 EV sales are expected to grow more than 1000% over the next decade at a 33% CAGR, with Rivian in the lead. Other manufacturers, such as Workhorse Group and Mullen Automotive, are also in this market and gaining traction but don’t have the leadership position or moat of Rivian. 

Regarding its moat, Rivian is in production now with a proven fleet of vehicles. Amazon has more than 10,000 units operating in 1,800 cities globally. The core of its deal with Rivian remains intact and is on track to put over 100,000 vans on the road. Because the company’s revenue is tracking to average roughly $5 billion annually for 2023/2024, this is a significant opportunity. A single percentage point in market share gain is worth about $1.6 billion of the 2023 market or about 33% in revenue growth for Rivian. 

Rivian outperforms and raises guidance 

Rivian’s production and delivery numbers aligned with the pre-release figures but resulted in better-than-expected top and bottom line numbers. The company pulled in $1.34 billion in revenue for a gain of 150% compared to last year. This is down from the 200% gain posted in Q2. However, a solid hyper-growth number, better than expected, and triple-digit gains are likely over the coming quarters. Production and deliveries were centered in the R1S model, which may be boosted by deliveries of the first Max Pack vehicles in Q4.

Margin news is also good. The company’s efforts to control costs and improve the supply chain are paying off and led to a less-than-expected loss. This is despite increased costs related to ramping production and customer acquisition, which are helping top-line growth. The $1.19 adjusted loss is $0.13 above the Marketbeat.com consensus forecast and compounded by an improved outlook for production, deliveries, losses, and CAPEX expenses. 

The company didn’t offer delivery guidance but raised the production outlook by 2,000 vehicles or nearly 4%. This should increase deliveries, aiding top-line results and adding leverage to the bottom line. In this scenario, the company will likely outperform in Q4 and issue favorable guidance for 2024.

The analysts see this stock price ramping higher

The analysts' activity leading into the Q3 release is favorable to higher share prices, and the trends in place should continue now that guidance is improved. The 20 analysts tracked by Marketbeat.com rate the stock a consensus Moderate Buy, and the activity has the stock on the Most Upgraded Stocks list. A continuous string of price target revisions has the consensus still down from last year but flat over the last 2 quarters and nearly 70% above the recent price action. 

The stock surged more than 5% in premarket trading, aided by the high 15% short interest. The move confirms support at a higher level than in June and suggests a reversal in progress. The question is if the bears will sell into the rally and cap gains or if the bulls can hold their ground. The critical resistance for near-term trading is at the 30 and 150-day moving averages; if the market can get above those levels, it could complete its reversal and set up for a sustained rally.