Why Rivian Analysts Remain Confident After Automaker's Warning Of Production Shortfall

Rivian Automotive, Inc. RIVN released its first quarterly report as a public company late Thursday.

Although the third-quarter results were largely in line with expectations, the company's warning of a production shortfall spooked investors.

The Rivian Analysts: Wedbush analyst Daniel Ives maintained an Outperform rating and $130 price target on Rivian shares.

Morgan Stanley analyst Adam Jonas maintained an Overweight rating and $147 price target.

Wells Fargo Securities analyst Colin Langan retained an Equal Weight rating and $110 price target.

Rivian's Problem Is Supply: Rivian signaled strong reservation demand for its R1S and R1T models heading into 2022, Wedbush analyst Ives said in a note.

Demand is robust, with reservations on a trajectory to surpass 100,000 by the first half of 2022, the analyst said. The total number of R1T vehicles produced and delivered as of Dec. 15 were 652 units and 386 units, respectively, he said. 

These production numbers and those expected in the fourth quarter will end up falling roughly 300 units short of 2021 goals, Ives said. The analyst attributed the shortfall to the ability to ramp the factory in Illinois coupled with component shortages.

This, therefore, is a supply issue and clearly not a demand issue for Rivian, he said — the linchpin to Wedbush's bull thesis over the next 12 to 18 months.

"Supply help is on the way as Rivian now will be breaking ground on a new second U.S. factory in Georgia which will be a key production artery for the company over the coming years." 

Morgan Stanley's Key Takeaways On Rivian: Rivian's third-quarter numbers were largely in line with Morgan Stanley's forecasts on operating expenditures, operating losses and free cash flow, Morgan Stanley analyst Jonas said.

Among the key takeaways for the firm are Rivian's updated reservations, which stood at 71,000 units as of Dec. 15, up from 55,400 units at the beginning of November, the analyst said. 

Secondly, the company lowered fiscal-year 2021 guidance, he said. The analyst estimates production of 18,000 consumer units and 12,000 commercial units in 2022, for a total of 30,000 units. 

Thirdly, construction at the Georgia plant will start in mid-2022, with the start of operations targeted by 2024, Jonas said.

This timing is roughly one year ahead of Morgan Stanley's forecast for the timing of a second plant, the analyst said. Rivian also plans to expand its Normal plant capacity from 150,000 units to 200,000 units, he said.

Related Link: Why Rivian Analysts Are Largely Bullish: 'EV Maker Could Be The One That Can Challenge Tesla'

Wells Fargo's Long-Term View On Rivian Unchanged: Rivian burned through $1.15 billion in free cash flow primarily driven by strategic investments in infrastructure, including the buildout of the Normal, Illinois plant, Wells Fargo analyst Langan said.

Rivian's management was clear the fourth-quarter production issues were temporary, the analyst said.

The company plans to deliver its first electric delivery van this month, and all three models should be in production by the end of the year, he said. 

"While the Q4 production delay is disappointing, it's hardly a surprise for a startup & does not change our long term view," the analyst said.

Rivian announced it is planning to begin construction on its second manufacturing facility in Georgia in the summer of 2022, Langan said. The plant is projected to employ more than 7,500 people, he said. 

Rivian expects to start production at this facility in 2024, likely the R2 platform, and expects this facility to have the capacity to produce up to 400,000 vehicles annually, the analyst said. The plant will eventually have cell production co-located at the location, he added.

Rivian Price Action: Rivian shares were plunging 11.32% to $96.55 midday Friday. 

Related Link: Why Ford Is Terminating Its Joint EV Development Plan With Rivian?