By Michael Elkins
Shares of electric vehicle maker, Rivian Automotive (NASDAQ:) are down 1.8% in pre-market trading on Wednesday after RBC Capital Markets reiterated an outperform rating and cut the price target to $62 (from $75).
An analyst at RBC Capital wrote in a note that “Near-term encouraging activity gives us more confidence in 4Q22 ramp, but lowering 2023 estimates on some changeover factors. Remain OP rated but PT to $62 on revised model.”
He adjusted 3Q production forecasts to 8.5k from 8.65k. For deliveries, RBC now forecasts 7.2k from 7.8k, more in line with the consensus estimate of 7.1k. The automaker, in its 2Q22 earnings report, implied the switch to rail from truck delivery would lower costs but increase the discrepancy between production and deliveries.
The company’s recent increase in activity gives RBC Capital more confidence that 25k annual production is feasible. RBC Capital’s tracker showed, for the majority of 3Q22, plant activity was modestly higher than during the period of 5/9-6/30, during which the analyst calculates RIVN was producing, on average, ~404 vehicles/week. Near the end of the quarter, the tracker showed another spike in activity, which is encouraging. Management suggested workers for the second general assembly line shift could come in late 3Q22/early 4Q22.
However, despite near-term developments, RBC Capital still cut 2023 production forecasts to 63.5k from 82.5k. This is primarily because of several factors RBC learned at the RBC Global Industrial Conference on September 19th.
First, in 1Q23 RIVN will switch to introducing LFP packs and their new in-house Enduro motor. The switch will likely cause some downtime and a new ramp will be required. Second, around the middle of 2023, RIVN plans to rerate their plant to allocate 75% of production to the R1 which will require a multi-week changeover. As a result, RBC Capital’s 2023 delivery forecast for Rivian goes to 57.7k compared to 80k prior (consensus is 73k).
RBC is also taking the opportunity to incorporate a more prudent ramp through 2025 and now forecasts 159k deliveries vs. 182.7k prior (consensus 213k).