Electric vehicle (EV) manufacturer Rivian Automotive (NASDAQ:RIVN) has plenty of skeptics. It’s been difficult to defend RIVN stock as it has lost ground in 2023 so far. Unfortunately, the outlook isn’t bright, as Rivian Automotive’s expenditures are disproportionately high.
This isn’t to suggest that Rivian Automotive is doing everything wrong. For example, it’s notable that Rivian plans to add an “integrated dash cam” and enhanced towing features to some of its electric trucks.
Plus, as we’ll discuss in a moment, certain vehicles from Rivian may now be a little bit more affordable. It’s not clear, however, that this will translate to strong financials for Rivian Automotive.
Rivian Automotive Is Eligible for Partial Tax Credits
Plus, some of Rivian Automotive’s EVs are now eligible for partial tax credits valued at $3,750. However, Rivian’s vehicles will still be pricey, even after those tax credits.
Reportedly, Rivian Automotive’s trucks have a $73,000 starting price, while the automaker’s SUVs start at $78,000. During a time of high inflation, it’s going to be challenging for many automotive shoppers to afford these vehicles, even after a $3,750 tax incentive.
If you’ve ever shopped for a new vehicle, you’ll probably know that a car’s actual, final cost is typically much higher that its so-called “starting price.” The point is, don’t expect the partial tax credit to move the needle much when it comes to Rivian Automotive’s vehicle sales in 2023.
RIVN Stock Gets a Deep Downgrade
Possibly because Rivian Automotive’s EVs are expensive, it’s been challenging for the automaker to sell many of its vehicles. Notably, Rivian fell short of its goal of producing 25,000 vehicles last year, as the company actually produced 24,337 vehicles.
Rivian Automotive provided 2023 production guidance of 50,000 vehicles. However, doubling the company’s year-over-year EV production won’t produce favorable financial results. For 2023, Rivian guided for capital expenditures (capex) of $2 billion and adjusted EBITDA of -$4.3 billion.
Moreover, Rivian admitted, “During 2023, our gross margin is expected to remain negative.” It shouldn’t be too surprising, then, that RBC Capital Markets analyst Tom Narayan expressed concerns about Rivian Automotive’s financial outlook.
“Near-term, we see limited catalysts to accelerate profitability and believe margins will remain constrained,” Narayan explained. His point is duly noted, as Wall Street expects Rivian to spend roughly $10 billion to produce 50,000 vehicles this year. Ultimately, Narayan ended up cutting his price target on RIVN stock in half, from $28 to $14, while also downgrading the stock from “buy” to “hold.”
So, Will RIVN Stock Prove the Skeptics Wrong in 2023?
Skeptics like Narayan observe that Rivian Automotive is spending a lot of money to produce its vehicles. This will make it difficult for the automaker to firm up its bottom line.
So, don’t expect the skeptics to be proven wrong about Rivian Automotive this year. Due to the company’s spending and margin issues, it’s wise to avoid RIVN stock for the time being.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
