Rivian shares gets discounted; shares can move lower

Key Points

• Rivian outpaced consensus on the top line, but losses and guidance led to a stock implosion.
• The EV boom is over; now it's time for Rivian to prove it can make money. 
• Analysts are trimming their targets; there is a risk that institutional selling will become a headwind for price action. 

Rivian’s NASDAQ: RIVN Q4 release further proves that the EV market bubble has burst. Internal metrics and guidance suggest demand has peaked and current capacity is too much. The takeaway is that business isn’t getting any better soon; if Rivian can’t start producing profits, it will go the way of the wild buffalo into history. 

Not all market participants are unhappy with the results. Whoever sold the 15% of shares short on the market is sitting pretty, with the market down 25% for the day, setting an all-time low for the stock. Because the outlook is so gloomy and profits are still years away, short sellers will likely lean into this trade, and if they don’t, sellers will likely meet any rebound and keep this market in a downtrend. 

Rivian implodes on mixed results and weak guidance 

Rivian had a rough quarter in Q4, ramping production for what appears to be no reason at all. The company’s revenue outpaced the consensus estimate, but overproduction cut into the bottom line, aiding a larger-than-expected loss. The $1.32 billion in revenue is up 100% YOY and outpaced the analysts’ consensus target by 470 basis points, which may be the only good news. Regarding production and deliveries, production topped 17,500 units, with only 80% delivered, and deliveries fell sequentially. 

The margin news is among the worst. The company improved its gross profit per vehicle significantly, but the gains were overshadowed by inventory cost and CAPEX, resulting in a deeper-than-expected loss. The company reported $1.73 per share in adjusted losses, $0.41 weaker than expected, and the guidance is no better. 

Rivian’s run rate in Q4 is an annualized 70,000 compared to the 57,000 deliveries guidance. This more than suggests the company will be slowing production in the coming year, good for total cost but bad for leverage. The company forecasts annualized losses to range near $2.7 billion EBITDA. 

Rivian takes move to cut costs

Rivian announced cutting 10% of its salaried workforce to reduce costs. The cuts are in addition to a select number of hourly workers but may be too late. The company still has $9.7 billion on its balance sheet, but $2.7 billion in annualized losses will whittle that away quickly. With the EV market stalled, it is unlikely Rivian will reach profitability on target. Additionally, price cuts intended to attract more consumers are likely to continue impacting results and outlook in 2024. The race now isn’t to ramp production but to achieve profitability while maintaining a competitive edge against Tesla NASDAQ: TSLA and other EV OEMs. 

Analysts support Rivian but are lowering their price targets and ratings following the release. Among the more prominent revisions is one from JPMorgan Chase, downgrading to Neutral and setting the new low price target. That target assumes the stock is fairly valued at its new low near $11. The consensus target assumes a 100% upside but is falling quickly and may not support the price action.

The technical outlook: Rivian gets taken to the dump

The price action in RIVN is not promising for anyone except a bearish trader. The market is down more than 25% and moving lower after the news. The volume is also the highest in months, suggesting a high-conviction move by the market. If this market can’t find support soon, it will likely continue to move lower until there is some sign that profits are coming soon. 

As it is, Rivian risks losing its institutional support, which is significant. Institutions own more than 60% of the shares, with Ford Motor Company NYSE: F and Amazon NASDAQ: AMZN listed as top holders. They will unlikely exit their stakes soon, but other institutional holders and funds are more likely to cut losses.