Could it be that Rivian's Stock Reaches $15, as Suggested by One Financial Expert?
Investors in Rivian Automotive (RIVN, 24.45%) endured a challenging week, with the electric truck company's stock gradually sinking below the $10 mark following the release of a dismal "financial report." Despite the report revealing a substantial loss of $1.45 per share, analyst Andres Sheppard of Cantor Fitzgerald remained optimistic last Wednesday, predicting a 50% surge in Rivian stock, pushing it to $15 per share within the next 12 months.
Is Rivian stock a worthy investment?
Sheppard adjusted his price expectations for Rivian stock from $23 to $15, describing his forecast as "moderate." However, the demand for electric vehicles (EVs) has plummeted among consumers, forcing Rivian to maintain their production volume rather than expand as Sheppard anticipated. Furthermore, the company is still reporting significant losses for each EV they sell, approximately $38,000 per unit.
Despite these challenges, Sheppard kept his bullish stance on Rivian, predicting that the company will only burn through around $4 billion in cash over the coming year. He also believes that Rivian's gross profit margin will turn positive in the second half of 2025. Unfortunately, there are a couple of issues with Sheppard's bullish outlook.
First and foremost: Financial resources. Rivian recorded a significant burn of $1.5 billion in free cash flow during Q1. On an annual basis, this equates to a burn rate close to $6 billion, as opposed to the $4 billion Sheppard calculations. Furthermore, gross profit margin is gradually worsening at Rivian. Sheppard himself acknowledged that he had to revise his predictions for gross margin for both this year and the first half of 2025.
While it's plausible that margins could recover within a year, driving up Rivian's stock price, investors won't have much confidence until they see (1) an improvement in the demand for electric cars, (2) an end to the fierce price battles among EV manufacturers, or (3) preferably, both of these factors.
And until we witness these developments, I find it difficult to envision Rivian stock reaching $15 per share.
Given the ongoing challenges in the electric vehicle market, such as decreased consumer demand and intensifying price battles among manufacturers, effectively reaching a $15 per share price for Rivian stock may require significant improvements in both sectors. Securing sufficient financial resources, specifically reducing the company's burning rate below the projected $4 billion, and enhancing the gross profit margin are essential steps for gaining investor confidence.
