Rivian Automotive stock has been downgraded due to the company's need for new models to sustain growth, which are still several years away.

Downgrade and Rating

Wolfe Research analyst Rod Lache recently downgraded Rivian stock from Buy to Hold. Although Lache does not provide specific price targets for Hold-rated stocks, a Hold rating indicates that Rivian shares should perform in line with the overall market.

Market Performance

In premarket trading, Rivian shares experienced a slight decrease of 0.4% to $23.23. In comparison, both the S&P 500 and Nasdaq Composite futures remained relatively unchanged. While this downgrade only resulted in a minor decline, Rivian stock has faced challenges at the beginning of the year.

Recent Performance

On January 3rd, shares dropped by 10.1% following the company's announcement of better-than-expected production figures. Canaccord analyst George Gianarikas expressed confusion regarding this drop, as he deemed the results to be satisfactory in a research report. However, it is worth noting that Rivian stock experienced a significant increase of approximately 40% in December, leading to some profit-taking by investors. The decline continued with a 3.7% drop on Wednesday.

The Reasoning Behind the Downgrade

The decision to downgrade the stock is primarily driven by concerns about future demand. Lache acknowledges the significant improvements made by Rivian in its production system, with the company producing 57,232 units in 2023 compared to 24,337 in 2022. However, he remains uncertain about the strength of growth in 2024 and 2025, the years leading up to the release of Rivian's second-generation vehicles built on the R2 platform.

Rivian's Strategy and Sales Growth

Rivian is making waves in the electric vehicle (EV) market with its R1T truck and R1S SUV, which are both built on the innovative R1 platform. The company plans to follow a similar strategy to Tesla, starting with higher-priced models and then introducing more affordable options. This approach has proven successful for Tesla, as seen with the Model S and X paving the way for the more budget-friendly Model 3 and Y.

In 2023, Rivian experienced impressive sales growth, with 50,122 units sold compared to 20,332 units in the previous year. However, the luxury end of the U.S. EV market is becoming saturated, and the cost of a R1 Rivian vehicle can reach $80,000. Approximately 25% of luxury car sales in the U.S. during the third quarter were electric vehicles, solidifying Tesla's status as a luxury car manufacturer.

Expanding sales might prove challenging for Rivian without offering more affordable EV options. While Rivian's sales grew by over 150% in 2023, experts predict that this pace will slow down to below 50% on average between 2024 and 2025. However, sales are expected to pick up again when the R2 platform is introduced in 2026 and 2027, with a projected growth rate of approximately 55%.

The overall market for EVs in the United States saw significant growth in 2023, with approximately 1.1 million electric vehicles sold—a 45% increase from 2022. Moreover, EV sales rose by almost 65% in 2022 compared to the previous year. Rivian's market share of EV sales also increased to about 5% in 2023, up from 3% in 2022.

Although Rivian is performing well, analysts have mixed opinions about the company's stock. Currently, 67% of analysts covering Rivian rate its shares as a Buy, which is higher than the average Buy-rating ratio of 55% for stocks in the S&P 500. The average analyst price target for Rivian is approximately $26—about 25% higher than its recent levels.

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