Amazon Key To Rivian's Strategy, EV Maker's Cash Burn In Question, Says Morgan Stanley Analyst

Rivian Automotive Inc’s RIVN highly ambitious and capital intensive plan to ramp up production after initially missing production and delivery target last year could invite investor scrutiny on Wednesday when the electric vehicle startup reports first-quarter earnings after the bell, according to Morgan Stanley analyst Adam Jonas.

The Rivian Analyst: Jonas has maintained an ‘overweight’ rating and an $85 price target on the electric vehicle startup’s shares that closed at $22.8 on Tuesday.

The Rivian Thesis: The electric vehicle startup could burn $7 billion in cash this year and could raise an additional $3 billion of capital by the year-end to fund its “extraordinarily capital intensive” production ramp-up,  Jonas said.

Rivian, which was sitting on $18 billion of cash as of the end of the previous quarter, had last month said it made 2,553 vehicles and delivered 1,227 cars in the first quarter. 

Jonas estimates Rivian burnt $900 million in cash in the first quarter.

“Rivian is trying to be a very large auto company very quickly by historical standards,” Jonas said.

According to the analyst, the role of investor Amazon.com Inc AMZN is key to Rivian’s strategy as it begins to vertically integrate into on-shore battery manufacturing and related content.

“This is highly capital intensive stuff that many Rivian investors may not be ready for.” 

Jonas said investors want to know how the pace of cash consumption can be controlled so as to lower the chance that Rivian is a forced capital raiser during a time of great market dislocation.

See Also: Rivian Says On Track To Meet 2022 Output Target After Stock Drops 9%

Why It Matters: Rivian has recently said it is on track to make 25,000 electric vehicles this year. Its factory in Normal, Illinois, has an annual capacity of 150,000 vehicles, which would increase to 200,000 units by 2023. 

The EV maker is setting up another plant near Atlanta which is expected to have an annual capacity of 400,000 vehicles and slated to open in 2024.

Shares in the company have been under pressure since the start of this year after CEO RJ Scaringe said Rivian was delaying deliveries of its 400-mile R1T pickup truck to 2023.

Price Action: Rivian closed flat at $22.8 on Tuesday and is down 77.8% year-to-date.