Piper Sandler Downgrades Rivian Automotive, Cuts Price Target By 76%: 'Frugality Matters More Than Ambition'

Rivian Automotive Inc RIVN shares dropped 3.4% on Friday morning after one Wall Street firm downgraded the electric vehicle maker.

The Analyst: Piper Sandler analyst Alexander Potter downgraded Rivian from Overweight to Neutral and cut his price target from $63 to $15.

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The Thesis: In the downgrade note, Potter said Rivian is the only EV maker other than Tesla Inc TSLA using a strategy of vertical integration, which he believes is the best way to capture after-sales revenue. However, he said that vertical integration strategy is also very costly.

"In order for RIVN to justify its cost structure, the company must spread its investment over millions of units (just like Tesla does), and in order to finance such aggressive expansion, RIVN will need capital," Potter said.

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In fact, he estimates Rivian will need to raise more than $4 billion in capital to fund its growth beyond 2025.

While he doesn't believe Rivian should abandon its vertical integration strategy, Potter said the stock is unlikely to trade significantly above book value until its funding needs are addressed.

In the meantime, Potter said it will be difficult for Rivian to significantly improve its cash burn profile without shifting its strategy in a major way.

Potter said his previous $63 price target assumed Rivian would eventually be selling at least 3.5 million units per year. He added that investors may no longer be willing to pay for the company's long-term prospects given its cash constraints and much more difficult capital markets.

Benzinga's Take: Tesla notoriously completed round after round of fundraising during its early expansion phase, but it did so when interest rates were at all-time lows. With interest rates now much higher, Rivian may face a much more difficult and expensive path that the one Tesla navigated.

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