Rivian: Rating Upgrade After Reports Of Outperforming Forecasts

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Just a fewer weeks ago, I wrote an article explaining why my position connected Rivian (NASDAQ:RIVN) was a hold. In short, I thought Rivian’s accumulation ramp-up was excessively slow, and I was worried astir their competition, specifically nan Tesla (TSLA) Cybertruck. In nan caller net report, 1 of my worries came existent arsenic they provided disappointing transportation updates. However, nan Tesla investor time has passed, and I now person a amended position of Rivian and its competition. While I went against nan bulls statement before, I now americium against nan wide bears statement connected Rivian’s 2023 outlook. I judge nan marketplace has overreacted to their transportation updates and Rivian will supply bully news successful nan adjacent fewer quarters.

In my article, I stated that I judge Rivian will “match gross expectations and outperform net by about 7%”, whereas, successful reality, Rivian missed gross expectations by 9% and exceeded net by 11.4%. In 4th 4, Rivian produced 10,020 vehicles and delivered 8,054, nan proviso concatenation being nan main limiting factor. Rivian’s 50,000 conveyance production outlook for 2023 tanked RIVN stock, arsenic it was good nether Wall Street's estimates of 62.2K. I was surely disappointed, arsenic I estimated 40-50K R1T unsocial to beryllium produced for 2023.

All that said, I expect Rivian to easy walk its 50k accumulation extremity and take a very blimpish target alternatively arsenic a consequence of lowering its accumulation goal respective times and still not reaching it past year. Before I explicate my reasons for my affirmative accumulation outlook, I’ll first reside their competition.

Regarding Competition

One of my concerns was Rivian’s competition. The electrical motortruck marketplace is still comparatively new, truthful I felt nan request to cognize what Tesla offers successful bid to amended understand nan competition. Tesla’s investor time went by covering their “masterplan 3”, pinch fewer quantitative qualities investors look for. There wasn’t overmuch update to nan Cybertruck different than reaffirming that accumulation starts this summer. They did concisely mention that nan motortruck is comparable to nan competition, which tells maine what I request - that Tesla will astir apt not meet nan specs it laid retired successful 2019.

Cybertruck Specs (Tesla)

Keep successful mind nan exemplary shown had an MSRP of $69,900 successful 2019. In comparison, R1T has a $73,000 starting value for a dual centrifugal pinch an estimated 260 miles of range. Indeed, Tesla will not meet their 2019 estimates and is expected to raise prices aliases driblet specs aliases a operation of some for nan models to beryllium “competitive”.

I expect that nan Rivian will proceed to beryllium 1 of nan champion electrical trucks nan marketplace offers, and I’m nary longer worried astir their competitory landscape.

Regarding Production

Another disapproval I had was that Rivian was ramping up productions excessively slowly. For reference, nan Ford lightning is group to nutrient 150,000 units this fiscal year. Compare that to estimates of astir 40,000 for nan R1T. The proviso concatenation continues to beryllium nan main problem for Rivian. However, my optimism for their accumulation comes from 2 sources: rumors and nan shareholder letter.

The rumor is from a recent article by Bloomberg, wherever “Rivian Tells Staff EV Output May Be 24% More Than Forecast”. Keep successful mind nan "forecast" stated was 50,000, translating into 62,000 units which falls wrong nan scope of Wallstreet’s original estimates. The sources of this accusation were kept anonymous for leaking backstage gathering information.

Personally, I deliberation nan leaked numbers are rather plausible. It aligns pinch what Wall Street and myself had successful mind. Given nan 10,020 vehicles that were produced successful Q4 and fixed their accumulation summation QoQ, 50,000 for nan twelvemonth seems excessively low.

Rivian Production summation QoQ (InsideEV)

Now, why would Rivian group specified a debased barroom for itself? They could beryllium holding backmost to “beat expectations”, it’s 1 of nan oldest tricks successful nan book. However, it’s not really beating expectations if nan existent numbers conscionable astir statement up pinch Wall Street estimates. And it’s not worthy it to fto their marketplace capitalization vessel truthful overmuch conscionable for specified sake. What I deliberation is much apt is that Rivian is playing conservatively because their transportation updates frankincense acold person been disappointing. Last year, they missed their accumulation extremity owed to a assortment of issues, and nan banal plummeted 71% successful nan aforesaid period. It is very imaginable Rivian is providing nan “worst-case scenario” not to disappoint investors successful lawsuit nan aforesaid catastrophe happens. It is possibly wiser successful their mind to underpromise and overdeliver.

Rivian banal value plummets (The Hustle)

However, I deliberation location are respective reasons why this worst-case script wouldn’t happen. CFO Claire McDonough stated successful nan management commentary that Rivian coming has “65,000 units of R1 capacity successful nan works astatine Normal”. He past commented that Rivian believes proviso constraints will alleviate successful nan 2nd half of nan year.

One absorbing point I noticed was that Rivian talked a batch astir their precocious expectations for 2024. They’re readying to “re-rate” their facility, going arsenic acold arsenic taking their works down for a fewer weeks mid-year (2024) to execute their desired capacity of 85,000. This demonstrates assurance successful resolving their silicon proviso concatenation issue, and Rivian stated vaguely they’re assured successful figuring it out. They scheme to spot a affirmative gross profit by nan extremity of 2024, meaning nary much LCNRV inventory charges and losses connected patient acquisition commitments.

Thus, it is imaginable Rivian has precocious figured retired proviso concatenation issues up of schedule, frankincense now they tin transcend expectations.

Conclusion

Within little than 3 weeks, 2 of my biggest concerns- competition, and production- were addressed. If Rivian officially updates its accumulation outlook, it only makes consciousness nan banal will spell backmost to its pre-earnings study level. Equity should not beryllium excessively overmuch of a interest successful nan short word arsenic they person an asset-to-liability ratio of 4.4, and they person Amazon (AMZN) supporting them. There are immoderate topics, specified arsenic R2 models that I didn’t want to touch connected because of their uncertainty. In my erstwhile article, I took a deeper dive into Rivian's business exemplary arsenic a whole.

With these successful mind, nan rumor down nan improved accumulation outlook seems morganatic arsenic respective group “familiar pinch nan matter” did corroborate it. If each goes well, Rivian is simply a institution group up for occurrence not conscionable successful nan short run, but for years to come. I deliberation nan clasp is over, and I would consciousness comfortable investing arsenic Rivian trades astatine its all-time lows.

Programmer and knowledgeable pinch college-level math. Experienced successful banal and options trading. I for illustration service-based and tech companies. I look astatine some macro and micro trends, putting typical accent connected growth.