This banker thinks Rivian has a demand problem — but production is a bigger problem for Rivian.
Rivian Automotive (RIVN -3.39%) stock — like most stocks — got rocked on Wednesday after higher-than-expected inflation data dashed investor hopes for a series of Federal Reserve rate cuts in 2024. But not to worry, says Bank of America.
Inflation or no inflation, and rate cuts or no interest rate cuts … Rivian’s stock price will more than double, and hit $21 a share within a year, according to BofA analysts.
Is Rivian stock a buy?
Rivian stock closed just shy of $11 a share Tuesday before the price target announcement, so a move to $21 per share would translate to a 98% return over the next year or so for new investors. That’s pretty exciting news for investors if BofA analyst John Murphy is right. But is he right?
Murphy says investors are focusing on car-buyer demand for EVs — so it makes sense to say “demand” is important for Rivian. Last year, after all, Rivian produced 57,232 electric trucks … but demand for them was so weak that it was only able to deliver 50,122 of them to willing buyers. In the short term, boosting demand really is important for Rivian — which is probably why Rivian just offered to kick in complimentary paint jobs, worth $5,000 on new-bought Rivians, to boost demand.
Longer-term, though, I think Rivian’s ability to produce — in particular, its ability to produce its new R2 and R3 electric SUVs — is a bigger factor in whether Rivian stock will double.
The reason is that producing and trying to sell only R1T electric trucks and R1S electric SUVs is costing Rivian nearly $6 billion a year in cash-burn. But Rivian only has about $9.4 billion in the bank. So unless Rivian succeeds in getting R2 production started within the next 18 months or so, Rivian will run out of cash and need to find more to complete its project.
Rivian’s R2, by the way, is due out for sale in early 2026, which is already more than 18 months. Regardless of “demand,” any delays in producing the new EV will only make Rivian’s cash situation worse. Caveat emptor, Rivian investors.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
