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[Barron’s] Rivian Stock Is Trading Terribly. Wall Street Thinks It’s Time for an Activist.

jjswan33

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Apple News Link: https://stocks.apple.com/Aef-MUS5dQcWKcGm2TpX8-Q

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R ivian Automotive stock has been trading far worse than most of its peers. Sales and products aren’t the problem. It’s spending. The company needs a plan to control cash and improve investor sentiment. Wall Street has some advice.


Morgan Stanley analyst Adam Jonas pointed out in a report Wednesday that recent Rivian (ticker: RIVN) stock levels were trading below their cash value. Rivian ended the year with about $13 in cash a share and added another $1.40 in cash a share by selling bonds.


The cash-per-share calculation doesn’t consider any debt and is only theoretical. Investors can’t get the cash and Rivian is using more cash than it is generating. The spending is what Jonas believes is causing this odd situation.


Rivian spent roughly $3.7 billion on operating expenses in 2022, roughly $2.8 billion more than Tesla (TSLA) spent when Tesla was a similar size almost 10 years ago.


Investors are discounting cash usage for years and not quarters, wrote Jonas. He surveyed investors recently about what Rivian should do and almost 40% of respondents believed Rivian should pursue some kind of “strategic alternative.”


Strategic alternative wasn’t defined in the survey and could mean anything from new investors to management changes to a radical change in spending plans.


Wedbush analyst Dan Ives believes an activist would help at Rivian. The activist could help with costs, focus, and strategic planning, he said. “When you look at Salesforce, and other names, it is activism that’s the gasoline on the fire.”


Salesforce (CRM) has had a few activists involved in the company for months, including Dan Loeb’s Third Point, Elliott Investment Management, Starboard Value, Inclusive Capital, and ValueAct Capital Partners.


Salesforce CEO Mark Benioff said ValueAct’s expertise “heavily influenced” the company’s latest quarterly results, noting that ValueAct’s CEO Mason Morfit brought with him “whole decks of strategy for distribution strategy, pricing strategy, product strategy.”


Investors appear happy Benioff is listening to outside advice. Salesforce shares have risen more than 40% this year. That’s the kind of stock move a change in investor sentiment can bring.


There are other ways to change investor sentiment. Battle Road Research analysts Ben Rose and Jonathan Rowe laid out a six-point recovery plan for Rivian in a report Tuesday. The first point of the plan is for management to buy some Rivian stock. Insider buying can demonstrate to outside investors that management is confident in the future and display to investors that a stock is a good value at current levels.


Battle Road is “perplexed” that no management or board members are buying and “instead, the company continues to issue additional shares to management, despite the stock’s poor performance.” Rivian’s stock-based compensation expense for 2022 totaled almost $1 billion.


Along with stock purchases, Battle Road wants Rivian to relocate headquarters to Illinois, where its manufacturing plant is based, add to manufacturing and fulfillment staffing levels, pause spending on a second assembly plant in Georgia, renegotiate supplier deals and accelerate production on electric delivery vans.


All are good ideas and might be what an activist investor would suggest.


Battle Road rates shares Hold and doesn’t have a price target on Rivian stock. Ives and Jonas rates shares Buy. Jonas has a $26 price target for the stock; Ives’ target price is $25.


Rivian stock was down 0.3% at $13.7 a share. The S&P 500 and Nasdaq Composite were both rising slightly. Coming into Wednesday trading, Rivian stock has fallen about 26% in 2023. The stock is down more than 80% from the company’s 2021 initial public offering price of $78.


All the declines have Rivian trading for about 0.7 times estimated 2023 sales. Lucid (LCID) trades for almost 10 times estimated sales. Tesla trades for about six times.
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I've often thought that Rivian is burning through cash too quickly on that second plant. That said, they need to produce lower cost vehicles to scale, so it's a bit of chicken or the egg situation. Perhaps they should have tried to start R2 production in Normal instead of starting from scratch.

If they can hold it together long enough to get R2 production going, I think they'll be fine. But it could be close.
 

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I've often thought that Rivian is burning through cash too quickly on that second plant. That said, they need to produce lower cost vehicles to scale, so it's a bit of chicken or the egg situation. Perhaps they should have tried to start R2 production in Normal instead of starting from scratch.

If they can hold it together long enough to get R2 production going, I think they'll be fine. But it could be close.
Yep, they really needed to put out an affordable option first. Especially with the current economic climate, its only a matter of time before R1T and R1S sales drop dramatically.
 

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$1 billion on stock options sounds a lot, especially in light of the $6.6 billion loss last year. Wonder if this will change. Activist stock holders have a bad name, sometimes rightly, but I wonder if having at least someone in the board quizzing certain decisions wouldn’t have some positive impact.
 

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The thing I agree most with is that insiders should purchase shares to demonstrate confidence in the company going forward
 

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Tesla almost went broke a few times, Elon admitted so himself. Rivian still has quite a bit of cash reserves and Amazon as a lifeline. I don't think Amazon will divest, if anything buy more of the company and tangent production towards more delivery vans. Rivian will be ok in the long run, short term will definitely be shaky, but what startup building a all new product with all new factories has smooth sailings?
 

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Just skimming, but this reads almost as bad as those clickbait Motley Fool articles. I don't see how comparing Rivian to Salesforce helps. They are two totally different products. Also just speaking anecdotally, everyone who drives a Rivian loves them. Everyone who is forced to use Salesforce for their job hates the product. Maybe a bit idealistic, but I prefer companies that are not universally reviled. 😆
 

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RIVN's roadmap made sense before they ran into massive supply chain issues. Leadership didn't pivot quickly enough, hence why they had massive spending in 2022. RIVN needs to get the cost per unit down and ramp Normal to capacity. Even if the R2 plant in GA is up and running, if Normal can't produce at capacity it's still going to burn cash.

Revenue generation & lowering costs will help the stock.
 

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Everyone wants Rivian to save money but only AFTER they take delivery of their full featured, over-engineered 3 second 0-60 beast. There are people having a meltdown over some minor changes to the stereo system they probably wouldn't even perceive if Rivian didn't make an announcement about.

This should be known as NIMR - "Not In My Rivian"
 

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RIVN's roadmap made sense before they ran into massive supply chain issues. Leadership didn't pivot quickly enough, hence why they had massive spending in 2022. RIVN needs to get the cost per unit down and ramp Normal to capacity. Even if the R2 plant in GA is up and running, if Normal can't produce at capacity it's still going to burn cash.

Revenue generation & lowering costs will help the stock.
I think they need to focus on the R2 plant and hope they can make the 2026 date.

The market is limited for the R1 platform simply because of the cost. Using Tesla as an example they sale 1 Model S/X for every 18.5 Model 3/Y. The path to growth and profitability is in the commodity models, not the flagships.

They are trying to get the exclusive clause out of the Amazon deal, that is a good move that surprisingly did not move the needle in the market. If Amazon is only going to purchase 10k a year then they need to remove the roadblock so Rivian can better utilize the EDV line to increase volumes.

They still have time, people just need to chill and let some things have time to get traction. The price of the stock right now is not that important, it will be important 2nd and third qtr in 2024 for valuation if they need to raise more funding.

EDIT: adding screenshot.
Rivian R1T R1S [Barron’s] Rivian Stock Is Trading Terribly. Wall Street Thinks It’s Time for an Activist. 8B230E4F-342F-4A66-960C-D1F2A8D65693
 

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virgnia_rivian

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I think they need to focus on the R2 plant and hope they can make the 2026 date.

The market is limited for the R1 platform simply because of the cost. Using Tesla as an example they sale 1 Model S/X for every 18.5 Model 3/Y. The path to growth and profitability is in the commodity models, not the flagships.

They are trying to get the exclusive clause out of the Amazon deal, that is a good move that surprisingly did not move the needle in the market. If Amazon is only going to purchase 10k a year then they need to remove the roadblock so Rivian can better utilize the EDV line to increase volumes.

They still have time, people just need to chill and let some things have time to get traction. The price of the stock right now is not that important, it will be important 2nd and third qtr in 2024 for valuation if they need to raise more funding.

EDIT: adding screenshot.
8B230E4F-342F-4A66-960C-D1F2A8D65693.jpeg
I completely agree they need a less expensive market entry, but they have a massive backlog to fill from Normal and if they can continue to bring more production in-house, I think the dual motor R1 vehicles will open them up to a new market. But in general, I agree. They need a vehicle in the 50k range.
 

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Rivian still has quite a bit of cash reserves and Amazon as a lifeline. I don't think Amazon will divest, if anything buy more of the company and tangent production towards more delivery vans.
Amazon could have more vans if they wanted them now. I wouldn't count on them for a ton of help, they have their own problems.
 

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I think they need to focus on the R2 plant and hope they can make the 2026 date.

The market is limited for the R1 platform simply because of the cost. Using Tesla as an example they sale 1 Model S/X for every 18.5 Model 3/Y. The path to growth and profitability is in the commodity models, not the flagships.

They are trying to get the exclusive clause out of the Amazon deal, that is a good move that surprisingly did not move the needle in the market. If Amazon is only going to purchase 10k a year then they need to remove the roadblock so Rivian can better utilize the EDV line to increase volumes.

They still have time, people just need to chill and let some things have time to get traction. The price of the stock right now is not that important, it will be important 2nd and third qtr in 2024 for valuation if they need to raise more funding.

EDIT: adding screenshot.
8B230E4F-342F-4A66-960C-D1F2A8D65693.jpeg
The market for the R1 line is bigger (maybe a lot bigger) than the market for Model S/X (genuine trucks and SUVs at lower price points vs more expensive sedan and a bubble "suv"). But I agree the R2 is critical for long term success. I think the stock will start turning around soon once Wall St sees they are on a sustainable path to operating profits on the R1 line. Meeting or exceeding the production and delivery forecasts for Q1 2023 would be a good start. The stock could really jump if they announce a new customer for the vans.
 

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The market for the R1 line is bigger (maybe a lot bigger) than the market for Model S/X (genuine trucks and SUVs at lower price points vs more expensive sedan and a bubble "suv"). But I agree the R2 is critical for long term success. I think the stock will start turning around soon once Wall St sees they are on a sustainable path to operating profits on the R1 line. Meeting or exceeding the production and delivery forecasts for Q1 2023 would be a good start. The stock could really jump if they announce a new customer for the vans.
I agree the R1 series can be bigger than the S/X market, especially when they start delivering the dual motor LFP under 80k. That being said though the market for vehicles north of 70k is limited in general and with the interest rates going north and the fed insisting on higher unemployment numbers as an indicator for curbing inflation that market will be smaller between now and 2025.

Maxing out the normal plant capacity will probably mean a switch where the EDV numbers will be a higher percentage of the sales. Lots of potential there between last mile, trades, and customizers, hoping to see an announcement on that front sooner than later.
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