Rivian’s AI, autonomy impress Wall Street, but EV and capital concerns remain

Rivian Automotive impressed Wall Street on Thursday with its plans for artificial intelligence, automation and an internally developed silicon chip, but significant challenges involving demand and capital remain for the electric vehicle maker.

Despite Wall Street analysts expressing some optimism following Rivian’s first “Autonomy and AI Day,” the company’s stock fell 6.1% to close Thursday at $16.43 per share. But shares recovered Friday to close at $18.42, up 12.1%

While the event didn’t cause many analysts to change ratings or price targets, Needham raised its price target on Rivian by 64% to $23 per share. The firm did so on the tech announcements and potential for future licensing deals, as well as higher-than-consensus expectations on deliveries next year of the company’s new midsize R2 SUV.

“RIVN signaled a shift from an [automaker] adopting autonomy to one leveraging AI to build end-to-end autonomy,” Needham analyst Chris Pierce said in a Friday investor note.

The company’s stock had ramped up heading into the AI Day, but many analysts believed the announcements from the event were already “priced in.” Shares also fell as OpenAI made its own AI announcement Thursday, revealing its most advanced model yet.

“We attended Rivian’s Autonomy & AI Day yesterday in Palo Alto and came away mostly impressed with the strategic direction outlined by management,” Deutsche Bank analyst Edison Yu said Friday in an investor note. “However, the stock’s weakness seems warranted given the run-up since earnings and lack of a major AI partnership/deal announcement.”

Rivian’s announcements included a proprietary chip, RAP1, designed for “physical AI,” namely autonomous driving; an evolved software architecture, or “brains” of the vehicle; a new AI assistant; and a road map for getting to “personal L4,” or fully self-driving personally owned vehicles.

The latter begins later this month with an update involving its hands-free driving system, followed by plans to continue to expand capabilities until vehicles reach full autonomy in the years ahead. Rivian did not disclose a time frame for the full autonomy or potential robotaxi fleet autonomous vehicles.

Leading up to the event, Rivian shares were up more than 30% to $17.50. Despite those gains, shares remain well off the levels of the company’s IPO of $78 per share in 2021.

Barclays analyst Dan Levy and others said while Rivian’s technology announcements, including the surprise proprietary chip, were impressive, the company remains a “show me” story amid more challenging market conditions.

“With RIVN facing a tougher path to breakeven on core vehicle sales alone, we believe with enhanced AV/AI capabilities RIVN is further paving the path to additional software/service revenues, which would be margin accretive,” Levy said Friday in an investor note. “To be clear, there is certainly a ‘show me’ element for RIVN on its capabilities.”

Challenges include slumping EV demand following the end of up to $7,500 tax credits in September, lack of other support under the Trump administration and internal struggles at the company involving products and capital.

Several analysts noted the adoption of advanced driver assistance systems remains low across the industry, even at U.S. EV leader Tesla, and Rivian is continuing to play catch-up to other companies that have offered such systems for years.

Rivian founder and CEO RJ Scaringe and other executives argued that the company’s vertical integration of in-house capabilities including software, AI, vehicle platforms and other technologies will enable the automaker to be more efficient, quicker and better than others.

“AI is enabling us to create technology and customer experiences at a rate that is completely different from what we’ve seen in the past,” Scaringe said during the event.

Such arguments, as well as the automaker’s prior $5.8 billion joint venture software deal with Volkswagen, have led Wall Street to price Rivian’s software business higher than its core of producing and selling EVs, given market conditions.

A $12 price target for Rivian shares from Morgan Stanley, which recently downgraded the company to underweight, includes $7 for software and services and $5 for its core automotive business. Several analysts added that Rivian might be able to license or sell its newest technologies, including chips.

“RIVN is developing a suite of hardware and software offerings to remain competitive in an Auto 2.0 world. However, several risks remain around demand, potentially limiting data capture needed to reach higher levels of autonomy,” Morgan Stanley’s Andrew Percoco said in a Friday note.

Morgan Stanley raised concerns about autonomy adoption rates, lackluster EV demand ahead of Rivian’s new “R2” vehicle next year and a prolonged path to profitability as reasoning for the rating confirmation.

RBC Capital Markets analyst Tom Narayan agreed: “The advancements enhance Rivian’s product offering but do not address ongoing concerns around liquidity and R2/R3 profitability.”

Rivian continues to lose billions of dollars annually, despite significant cost reductions and gains in software revenue thanks to its deal with VW.

Rivian ended the third quarter with $7.7 billion in total liquidity, including nearly $7.1 billion in cash, cash equivalents and short-term investments that Scaringe has said position the company “really well” for the R2 launch.

The R2 midsize SUV is crucial for Rivian — especially since it’s a major market in the U.S. With expectations of a $45,000 starting price, it is anticipated to broaden Rivian’s customer base and be a proof-point for the company’s efforts regarding profitability and cost savings.

Rivian’s current R1 pickup truck and SUV consumer models start at more than $70,000. It also builds electric delivery vans, largely for its biggest shareholder, Amazon, that start at around $80,000.

“Profitability pressure will likely intensify as Rivian rolls out its ~$45K R2 platform in the highly competitive mid-size SUV segment,” Narayan said. “While targeting a lower price point could increase market reach, the R1 platform’s struggles with profitability despite being nearly double the price of the R2 raise.”

Shares of Rivian, with a $22.5 billion market cap, are rated hold with a $15.43 per share price target, according to average ratings and estimates compiled by FactSet.

— CNBC’s Michael Bloom contributed to this report.