After struggling throughout this year due to myriad headwinds, electric vehicle (EV) manufacturer Rivian (NASDAQ:RIVN) finally caught some relatively good news. UBS analysts are no longer directly bearish on RIVN stock. Nevertheless, the upstart EV maker faces competitive concerns that cloud the overall narrative.
According to a Barron’s report, UBS analyst Joe Spak upgraded RIVN stock to “hold” from “sell” while leaving the price target as is at $9. As Barron’s senior writer Allen Root wryly pointed out, Spak didn’t have to change his price target due to Rivian shares suffering a calamitous decline this year.
One reason that UBS believes RIVN stock can recover (on a relative basis) is its high short interest. Per Fintel, this metric stands at 18.44% of its float. Short sellers bet against a security, hoping that it will fall. If it does, they can scoop up shares for cheap and return the amount borrowed to initiate the short position back to the lending broker, pocketing the difference.
However, Root wrote that “[s]ometimes short sellers can get themselves into trouble when too many have the same idea. High short interest can lead to a squeeze when a stock price rises rapidly as short sellers look to buy shares all at once.”
Risk-Reward Balance for RIVN Stock Clashes with Competitive Concerns
Another factor that convinced UBS to abandon its bearish take on RIVN stock centers on the improved overall proposition. “We believe the near-term risk/reward is more balanced at current levels (upside/ downside case skew is 1.6:1),” Spak stated in a research note.
Specifically, UBS believes that UBS is not pricing the possibility of $4.5 billion of sales in fiscal 2025. To be sure, RIVN stock currently trades at 2.01x last year’s revenue. In 2023, the company posted revenue of $4.4 billion.
Therefore, if Rivian generates the consensus view of $7.48 billion in revenue in 2025, at the current price and assuming the same shares outstanding count of 977.45 million, RIVN is currently trading at 1.14x projected 2025 sales.
Adding to the balanced risk-reward argument, Rivian may launch its R2 SUV around 2026 to 2027. Priced at only $45,000 per Rivian’s website, it could be a game-changer for RIVN stock. Nevertheless, competitive concerns still cloud the contrarian bullish narrative.
Beyond the ugly sector-wide price war that has dogged the EV ecosystem, pure-play manufacturers face another challenge: the popularity of hybrid EVs. As CNN pointed out, Toyota (NYSE:TM) is crushing the competition — including almighty Tesla (NASDAQ:TSLA) — with its hybrid vehicles.
So, by the time Rivian is ready to launch its R2, hybrid vehicles may have taken much of the market.
Why It Matters
Currently, Wall Street analysts overall rate RIVN stock as a consensus moderate buy. This assessment breaks down as 12 buys, eight holds and three sells. Overall, the average price target stands at $16.91, implying almost a doubling from the time of writing. However, that’s largely a factor in Rivian shares falling off so much this year.
On the date of publication, Josh Enomoto 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.
