Rivian's stock is a risky bet. Why this analyst now says it's one worth making.

By Emily Bary

Rivian shares rise 4% premarket as Piper Sandler turns bullish, calling the company's new lineup 'just so cool'

Piper Sandler analyst Alexander Potter acknowledges that it's "risky" for investors to bet on shares of Rivian Automotive Inc., but he now thinks it's a move investors should consider.

Potter upgraded Rivian shares (RIVN) to overweight from neutral in a late Thursday note to clients, writing that the maker of electric vehicles could start impressing Wall Street more thanks to its product roadmap.

The company's recently unveiled R2 sport-utility vehicle picked up about 68,000 orders in the first 24 hours, Potter noted. And the R3, which will come out down the line, "could be one of the most compelling designs on the market when it is released," in his view.

"This excitement around new products, coupled with a plan to delay [capital expenditures] and build R2 in an existing plant, should prompt investors to adopt a more bullish stance," he continued.

Read: Rivian's 'stunning strategy' wins over Wall Street

The upgrade follows steep recent pressure on Rivian shares, which are off some 30% since the company delivered a disappointing forecast alongside its latest earnings report in mid-February. The stock has declined for four sessions in a row, though it's up 4% in Friday's premarket action.

Potter called Rivian's upcoming lineup "just so cool (and priced right)." He thinks the R2 SUV will resonate with shoppers who want "palatably-priced ($45k+) electric SUVs that actually look and perform like SUVs." Meanwhile, with the right pricing, Rivian could make the eventual R3 into its best seller, though Potter admitted it's hard to predict how sales of that future model will fare.

There's more to the company's story than selling cars, according to Potter, and he likes that Rivian could follow Tesla Inc.'s lead by looking at the revenue potential of software and services.

"If Rivian can achieve cash flow breakeven in the late 2020s, which is our expectation, then the company should be able to self-fund the production of an internet-connected vehicle fleet and, ultimately, unlock operating margins in the teens," he wrote.

Rivian's cash needs have been a recent concern on Wall Street, but Potter said he sees the company getting more frugal in an attempt to cut back its cash burn. The company's decision to build its R2 cars in an existing factory means they should come out more quickly, and Rivian won't have to spend up on a new factory. That could drive upwards of $2 billion in cost savings, "thereby stretching Rivian's cash balance and delaying the need for more capital."

He projected the company will need about $2 billion of new cash in the second half of 2025, a hefty sum, but half his prior estimate.

Still, there are numerous risks to Rivian's story, and Potter outlined a few reasons why his call could prove wrong. In a section examining why it may be better to stick to a neutral stance, he wrote that "demand could stagnate" with the R2 not due out until early 2026. Demand could also be in jeopardy if the R2 ends up costing more than $45,000, with Potter commenting that "EV prices often creep upwards."

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-Emily Bary

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03-15-24 0812ET

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