Written by Cláudio Afonso | LinkedIn | X
Jefferies analyst Philippe Houchois published Monday a new research note on the electric vehicle maker Rivian following the firm’s visit to the company’s facilities in Palo Alto, California.
Despite concerns over Rivian’s Q4 gross margin breakeven goal, Jefferies analyst reiterated a Buy rating and $17.00 price target on the stock indicating a 45 per cent upside on the shares.
“[Rivian’s] CFO Claire McDonough reviewed the broader investment case, the software JV with VW and updated the group on the supplier shortage currently disrupting the Gen 2 production ramp,” Houchois wrote.
“While we fear production issues may delay Q4 gross margin breakeven, we expect to see material improvement in variable costs in Q3,” he added.
As supplier challenges for the quarter ending this week, the firm says that “at recent conferences and in our meeting, management discussed issues with a supplier causing a shortage of components for the new Enduro motor.”
Houchois added that the situation “continues to fuel internal debate between out-sourcing and vertical-integration.”
“Claire did not quantify the impact or when issues might be resolved; Rivian should communicate more at the time of Q3 results,” he noted warning that “the ramp-up of R1 Gen 2 is slower than anticipated and the limited inventory of Gen 1 and Gen 2 models could slow deliveries.”
The analyst expects that Rivian’s reduced ability to cover fixed costs will negatively impact its gross margin, but it will likely emphasize improvements in variable costs to highlight gains from cost-saving measures during the shutdown in the second quarter of the year.
“Reduced fixed cost coverage should impact gross margin; we assume reporting focus will be on variable cost improvements rather than gross margin to gauge the benefits from the product costs implemented during the Q2 shutdown,” Jefferies analyst wrote.
Last week, Rivian officially started shipping out models of its Gen 2 R1T and R1S EVs with the new tri-motor configuration.
Written by Cláudio Afonso | LinkedIn | X
