On Wall Street, there are few guarantees. But one consistency you'll find is the desire to put money to work in the next-big-thing investments. No matter how well or poorly the broader market is performing, industry-changing innovations tend to attract investors.
Although anything having to do with artificial intelligence (AI) has captivated audiences in 2023, the next-big-thing investment that's been driving investor interest and buying activity for years is electric vehicles (EVs). According to Beyond Market Insights, global EV sales are expected to explode from $178.5 billion in 2021 to $1.11 trillion by 2030.
However, decades of next-big-investments show that while some companies are wildly successful, not all businesses looking to ride a new trend will be winners. Whereas Wall Street analysts are typically optimistic when it comes to setting price targets on the companies they follow, they're truly all over the place for EV stocks.
Two Rivian R1Ts climbing a hill. Image source: Rivian Automotive.
This is especially true for one ultra-popular EV stock. According to Wall Street price targets, the hottest initial public offering of 2021, Rivian Automotive (RIVN -2.04%), could soar 210% or potentially lose all of its value and head to $0.
One analyst sees Rivian climbing mountains
Among Wall Street's Rivian optimists, none stands taller than Truist Financial analyst Jordan Levy. With a $44 price target, Levy and his firm believe upside of up to 210% is in the cards.
On paper, plenty of catalysts exist that have the potential to meaningfully lift Rivian's share price. Before diving into those potential tailwinds, it's important to highlight the deal that put the company on the map.
In September 2019, more than two years before Rivian became a publicly traded company, e-commerce juggernaut Amazon (AMZN 1.98%) committed to an order of 100,000 electric delivery vans (EDVs) from Rivian. This order is expected to be fulfilled by 2030. Even though Amazon generates a mountain of operating cash flow and is known to throw this capital at numerous pet projects, it wouldn't have committed to 100,000 EDVs if it didn't see something special in Rivian.
Arguably the biggest catalyst for Rivian that could help it achieve Levy's lofty price target is its R1T electric pickup. Although Ford Motor Company and General Motors already have electric versions of their heavy-duty pickups in the works, Rivian holds a unique advantage. Aside from beating Ford and GM to market with the R1T, it's a luxury-designed (and priced) pickup that's still capable of going off-road. Since there's minimal competition in the luxury EV pickup category, the R1T shouldn't have too much trouble ramping up sales in certain markets.
Rivian is also spending $5 billion to build a manufacturing plant in Georgia, which is slated to open sometime next year. After producing 24,337 EVs in 2022, as well as standing by its forecast of 50,000 EVs produced in 2023, the Georgia plant should allow the company to really streamline its operations and make a potential push at positive gross vehicle margin by as soon as next year.
Another Wall Street analyst believes Rivian won't survive
But there are two sides to the Rivian story. While Jordan Levy and Truist see big things ahead for one of the most widely held electric vehicle stocks, CEO David Trainer of investment research company New Constructs believes shares will eventually be worth $0. The way shares of a publicly traded company reach $0 is if the company seeks bankruptcy protection and the common stock is cancelled.
Though the R1T has its own niche and EV sales in developed countries should grow over time, Rivian isn't without headwinds.
One of Rivian's biggest concerns has been persistent supply chain constraints. Despite the company's management team maintaining a 25,000 EV production target in 2022 on multiple occasions, Rivian fell 663 vehicles short of this mark when the year came to a close. Both Rivian CEO RJ Scaringe and CFO Claire McDonough pointed to a shortage of a specific component that left vehicles incomplete and led to the company missing its own production forecast. Putting the COVID-19 pandemic in the rearview mirror should help alleviate production issues, but it's ultimately up to Rivian to demonstrate that it can meet its own ramped-up output guidance.
Perhaps the bigger headwind for Rivian is its available capital. Even though the company closed out 2022 with approximately $12 billion in cash, cash equivalents, and marketable securities, more than $5 billion in net cash was used in operating activities, based on generally accepted accounting principles (GAAP). Including $1.4 billion in capital expenditures, the company had an adjusted free cash outflow of $6.4 billion in one year.
Last month, Rivian announced plans to raise $1.3 billion by selling convertible notes. Additional capital-raising activity, which could end up being dilutive to shareholders, may be needed to keep the lights on.
A final point to consider is that Rivian's next-generation vehicles, commonly referred to as its "R2" models, aren't expected to go into production until 2026. These R2 models are expected to be more affordable than its R1T pickup and R1S SUV. That's a veritable eternity to wait in the EV space for new innovation to hit showrooms.
A Rivian R1S in production at the company's Normal, Illinois manufacturing plant.
This is a prove-it year for Rivian Automotive
Regardless of whether you're a Rivian optimist or pessimist, what can't be denied is the importance 2023 holds for the company. With most countries ending COVID-19 restrictions, supply chains should normalize throughout the year, allowing Rivian an opportunity to ramp up its production and demonstrate to investors that 2022 was a fluke. Keep in mind that the 50,000 EVs it plans to produce in 2023 came in about 10,000 EVs shy of what Wall Street was initially forecasting.
Rivian will also have to show investors that it can increase its output without any degradation in the quality of its product. The company issued a recall last October on many of the vehicles it had produced due to concerns about a loose fastener. In March 2023, the company also issued two separate airbag recalls (albeit one affected only 30 vehicles) . Rivian simply can't afford any missteps given how much capital it's burning.
Most importantly, the company is going to have to either reduce its operating losses significantly by the end of the year or, more likely, raise a lot more than $1.3 billion to satisfy skeptics.
A wide range of outcomes exist for Rivian stock to prove Levy or Trainer correct. This year should provide the answers to a number of questions that'll help determine whether Rivian becomes an EV hero or just another zero in a crowded industry.
