Rivian’s AI, autonomy impresses but not enough to offset EV concerns

Rivian Automotive It impressed Wall Street on Thursday with its plans for artificial intelligence, automation and homegrown silicon chips, but significant challenges to demand and capital remain for the electric vehicle maker.

Although Wall Street analysts expressed some optimism following Rivian’s first “Autonomy and AI Day,” the company’s shares closed down 6.1% on Thursday at $16.43 per share. But shares rebounded on Friday, closing up 12.1% at $18.42.

While the event didn’t cause many analysts to change ratings or price targets, Needham raised its price target on Rivian by 64% to $23 per share. The firm did so amid high expectations from the consensus for technology announcements and the potential for future licensing deals, as well as deliveries of the company’s new mid-size R2 SUV next year.

“RIVN has signaled a change [automaker] It’s “embracing autonomy with someone using AI to create end-to-end autonomy,” Needham analyst Chris Pierce said in an investor note Friday.

The company’s shares were on the rise heading into AI Day, but many analysts believed that announcements around the event were already “priced in.” Shares also fell as OpenAI made its own AI announcement on Thursday, revealing its most advanced model yet.

“We attended Rivian’s Autonomy and AI Day in Palo Alto yesterday and were very impressed with the strategic direction set by management,” Deutsche Bank analyst Edison Yu said in an investor note Friday. “However, given the run-up since earnings and the lack of a major AI partnership/deal announcement, the stock’s weakness seems warranted.”

Rivian’s announcements include RAP1, a special chip designed for “physical artificial intelligence,” or autonomous driving; an advanced software architecture or “brain” of the vehicle; a new artificial intelligence assistant; and a roadmap to achieve “personal L4,” or fully self-driving personal vehicles.

The latter will launch with an update that includes a hands-free driving system later this month, followed by plans to continue expanding capabilities until vehicles reach full autonomy in the coming years. Rivian has not announced a timeframe for full autonomy or potential robotaxi fleet autonomous vehicles.

Ahead of the event, Rivian shares rose more than 30% to $17.50. Despite these gains, shares remain well below the $78 per share level at which the company went public in 2021.

While Rivian’s technology announcements, including a surprise proprietary chip, have been impressive, the company remains a “show me” story in tougher market conditions, Barclays analyst Dan Levy and others said.

“With RIVN facing a tougher path to breakeven on core vehicle sales alone, we believe RIVN with its advanced AV/AI capabilities further opens the path to additional software/services revenue that will be margin-enhancing,” Levy said in an investor note Friday. Levy said. “To be clear, there is definitely a ‘show me’ element to RIVN’s capabilities.”

Challenges include falling EV demand after tax credits of up to $7,500 expired in September, a lack of further support under the Trump administration, and internal struggles at the company involving product and capital.

Many analysts have noted that adoption of advanced driver assistance systems remains low industrywide, even as the U.S. electric vehicle leader. Tesla’sand Rivian has been playing catch-up with other companies offering such systems for years.

Rivian founder and CEO RJ Scaringe and other executives have argued that the company’s vertical integration of internal capabilities, including software, artificial intelligence, vehicle platforms and other technologies, will enable the automaker to be more efficient, faster and better than others.

“AI allows us to create technology and customer experiences at a completely different pace than what we have seen in the past,” Scaringe said. during the event.

Such arguments, as well as the automaker’s previous $5.8 billion joint venture software deal with Volkswagen, led Wall Street to price Rivian’s software business higher on the basis of producing and selling electric vehicles, given market conditions.

Morgan Stanley’s $12 price target for Rivian shares, which recently downgraded the company to underweight, includes $7 for software and services and $5 for its core automotive business. Several analysts added that Rivian could license or sell its newest technologies, including chips.

“RIVN is developing a suite of hardware and software offerings to remain competitive in the Auto 2.0 world. However, several risks remain around demand, potentially limiting the data collection needed to achieve higher levels of autonomy,” Morgan Stanley’s Andrew Percoco wrote in a note Friday. he said.

Morgan Stanley cited concerns about autonomy adoption rates, weak EV demand ahead of Rivian’s new “R2” vehicle, and a long road to profitability as reasons for the rating affirmation.

RBC Capital Markets analyst Tom Narayan agrees: “The developments improve Rivian’s product offering but do not address ongoing concerns about liquidity and R2/R3 profitability.”

Rivian continues to lose billions of dollars every year despite significant cost reductions and gains in software revenue thanks to its deal with VW.

Rivian finished the third quarter with $7.7 billion in total liquidity, including approximately $7.1 billion in cash, cash equivalents and short-term investments, which Scaringe said positions the company “really well” for the R2 launch.

The R2 mid-size SUV is a big deal for Rivian; The $45,000 starting price is expected to expand Rivian’s customer base and serve as a proof point for the company’s efforts in profitability and cost savings, as it is a large market, especially in the US.

Rivian’s current R1 pickup truck and SUV consumer models start at $70,000. It also produces electric delivery vans, largely for its largest shareholder. AmazonIt starts at $80,000.

“Pressure for profitability will likely intensify as Rivian launches its roughly $45K R2 platform in the highly competitive midsize SUV segment,” Narayan said. “While targeting a lower price point may increase market reach, the R1 platform struggles with profitability despite being nearly twice the price of the R2 raise.”

Rivian shares, which have a market cap of $22.5 billion, are held with a price target of $15.43 per share, based on average ratings and estimates compiled by FactSet.

— CNBC’s michael bloom contributed to this report.