Rivian Automotive (RIVN, Financial) stock experienced a notable decline of 5.31% today, following a downgrade by Morgan Stanley analyst Adam Jonas from overweight (buy) to equal weight (hold). The downgrade, alongside similar actions on Ford (F) and General Motors (GM), reflects concerns tied to broader industry challenges, including rising inflation and increased competition from Chinese automakers.
Morgan Stanley's concerns regarding Rivian (RIVN, Financial) are multi-faceted. As inflation pressures continue to jack up new car prices, consumer purchasing power is dwindling, leading to rising inventories. Additionally, the competitive landscape is intensifying as Chinese automakers aggressively undercut prices and export excess vehicles, hampering potential sales for U.S. automakers like Ford, GM, and Rivian.
Jonas placed particular emphasis on Rivian's (RIVN, Financial) strategic partnership with Volkswagen, which involves providing "electrical architecture expertise" for Volkswagen's vehicles. This partnership, while potentially beneficial, could necessitate a significant annual capital increase ranging from $200 million to $300 million starting around 2026. Currently, Rivian's capital expenditures stand at $1 billion annually. With the projected additional costs, Rivian's capex could soar to $1.8 billion by 2026, reaching levels comparable to its 2021 spending.
This substantial increase in capital intensity raises red flags, even with financial assistance from Volkswagen. Jonas expressed concerns about whether Rivian (RIVN, Financial) can handle the financial demands without overextending itself. Such challenges are further complicated by signs of financial distress. According to GuruFocus, Rivian's Altman Z-score of -1.28 places it in the distress zone, implying a possibility of bankruptcy in the next two years. The Piotroski F-Score of 3 also indicates poor business operations.
From a valuation perspective, Rivian (RIVN, Financial) currently has a GF Value rating of "Possible Value Trap, Think Twice," indicating caution for potential investors. The current market price of $11.21 does not seem aligned with its GF Value of $47.69, reflecting significant potential risks. For a detailed assessment, you can visit the GF Value page.
Additional key metrics include a Price-to-Book (P/B) ratio of 1.66, but no data on Price-to-Earnings (P/E) and Price-to-Free Cash Flow (P/FCF) ratios, highlighting profitability concerns. Rivian's negative EBITDA margin of -88.37% and operating margin of -117.27% further underline its operational inefficiencies. With these factors in mind, potential investors should remain cautious and consider the broader financial health and market conditions before making investment decisions.
