Rivian cut to Neutral at BofA amid challenging gross margin outlook

Investing.com -- Bank of America cut its rating on Rivian (NASDAQ:RIVN ) shares from Buy to Neutral, citing a challenging path to positive gross margins.

The firm also adjusted Rivian's price objective from $20 down to $13.

The downgrade follows Rivian's third-quarter 2024 results, which missed both BofA's and consensus estimates.

The company's adjusted EBITDA loss was approximately $760 million, more significant than the expected losses of $510 million by BofA and $650 million by consensus.

Moreover, Rivian's gross margin was reported at negative 45%, a much steeper loss than the negative 22% anticipated by analysts.

Rivian has also updated its 2024 outlook, now projecting an adjusted EBITDA loss between $2.825 billion and $2.875 billion, compared to the previous estimate of $2.7 billion.

The production forecast remains at 47,000 to 49,000 units, with expected deliveries between 50,500 and 52,000 units.

Despite these projections, Rivian anticipates a modest gross profit in the fourth quarter of 2024, bolstered by approximately $300 million in regulatory credits for the full year, with $275 million expected in the fourth quarter alone.

The bank notes that while Rivian is on track to achieve a positive gross margin by the fourth quarter of 2024, this will be partly due to regulatory credits, which are uncertain under the potential regulatory changes of a Trump administration.

“We also now expect only moderate growth in deliveries in 2025,” analysts led by John Murphy noted. “This is in part as the demand environment appears more challenging and as production will be limited by downtime RIVN is taking in 2H25.”

The firm also points to the arrival of new competitors like the Lucid (NASDAQ:LCID ) Gravity SUV, which is expected to enter the market this quarter, and as the outcome of the US elections could trigger a change in the regulatory environment.

“On this latter point, it could become more challenging for consumers to access IRA credits and there is potential for a disruption in regulatory credit pricing, which would put profitability further under pressure,” analysts continued.

BofA notes that Rivian's gross margin is expected to fluctuate, with the possibility of swinging between positive and negative values in the upcoming quarters.

Source: Investing.com