During a time when the electric vehicle manufacturing industry is hyper-competitive, it will be challenging for Rivian Automotive (NASDAQ:RIVN) to sell vehicles and turn a profit. Consequently, RIVN stock will be vulnerable in 2024 and might give up its recent gains. The best grade we can give the stock is a “D,” along with a cautionary signal for Rivian’s investors.
We’ve already warned you about the slowdown in EV demand. Amid this challenging backdrop, you’re encouraged to only invest in the best EV manufacturers and stay away from the rest. With that in mind, let’s start off with a troubling report that should make anyone think twice if they’re considering Rivian stock now.
Red Alert: What RIVN Stock Traders Need to Know
Sometimes, the market will push a stock up even though there are signs of trouble. This can happen when investors are in a risk-on mood. The market is enthusiastic about the possibility of interest rate cuts by the Federal Reserve in late 2023.
This could explain why RIVN stock bounced off of $15 in November and early December. Unfortunately, the market seems to ignore Rivian Automotive’s red flags. For example, Rivian Automotive “structured out” $15 billion worth of debt not long ago.
It’s alarming that Rivian would need a capital infusion of that size. Rivian Automotive expects to pay “minimum annual scheduled” payments that “start at $1.5 million and gradually increase to $20.4 million by 2047.” Even worse, these payments are “subject to further increases.”
That’s not the only bright red flag. A report from The Information stated that Rivian Automotive “laid off about 20 members of its long-range battery cell development team.” Rivian even laid off Victor Prajapati, the team’s lead cell engineer.
Rivian Stock Picks Up a ‘Buy’ Rating
Rock-solid, thriving businesses rarely incur large quantities of debt with hefty interest payments. They also rarely lay off the team leader of a significant development project. Clearly, these are grave signs for Rivian Automotive.
Stifel analyst Stephen Gengaro gave RIVN stock a “buy” rating and $23 price target. However, this isn’t particularly optimistic, as Gengaro’s price target seems to suggest that the stock won’t reach its 52-week high of around $28.
In addition, Gengaro acknowledged that Rivian Automotive R1 model vehicles are “clearly on the expensive side.” That’s a problem for Rivian during a time when EV manufacturers are engaged in a price war.
A Barron’s report figured that several well-known EV startups, including Rivian Automotive, are spending “more than $100,000 for each car sold.” So again, this is a time to focus your investment dollars on financially solid EV businesses. Thus, despite Gengaro’s “buy” rating, Rivian is on the high-risk end of the EV manufacturer spectrum.
There’s No Urgency to Buy RIVN Stock Now
There’s an important lesson to be learned here. Just because an analyst seems bullish on a stock, this doesn’t excuse investors from conducting their own due diligence. You can certainly apply this lesson to Rivian stock.
As Rivian Automotive lays off workers and prepares to incur a sizable debt loan, this is a time to be wary, not overeager. Hence, RIVN stock gets a “D” grade and investors are encouraged to investigate more high-confidence assets for 2023 and 2024.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
