Rivian’s AI autonomy is impressive but not enough to offset electric vehicle concerns

Rivian Cars The electric car company impressed Wall Street on Thursday with its plans for artificial intelligence, automation and an internally developed silicon chip, but significant demand and capital challenges remain for the electric car maker.

Although Wall Street analysts expressed some optimism following Rivian’s first “Autonomy and AI Day,” the company’s stock fell 6.1% to close Thursday at $16.43 per share. But stocks recovered during intraday trading on Friday and rose by more than 15%.

Although the event did not cause many analysts to change their ratings or price targets, Needham raised its price target on Rivian by 64% to $23 per share. The company did so based on technology announcements and the potential for future licensing deals, as well as higher-than-consensus expectations for next year’s deliveries of the company’s new R2 midsize SUV.

“RIVN indicated the shift from [automaker] “Building autonomy for someone leverages AI to build end-to-end autonomy,” Needham analyst Chris Pearce said in an investment note on Friday.

The company’s shares rose ahead of AI Day, but many analysts believe the announcements from the event have already been “priced in.” Shares also fell after OpenAI made its AI announcement on Thursday, revealing its most advanced model yet.

“We attended Rivian’s Autonomy & AI Day yesterday in Palo Alto and came away mostly impressed with the strategic direction set by management,” Deutsche Bank analyst Edison Yu said Friday in a note to investors. “However, the stock’s weakness appears justified given the rally since earnings and the lack of a major AI partnership/deal announcement.”

Rivian’s announcements included a special chip, the RAP1, designed for “physical AI,” i.e. autonomous driving; Sophisticated software architecture, or the “brains” of the car; New AI Assistant; And a roadmap for getting to “Personal L4,” or fully self-driving personally owned vehicles.

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

In the lead-up to the event, Rivian shares rose more than 30% to $17.50. Despite those gains, shares are still far from the company’s IPO levels of $78 per share in 2021.

Although Rivian’s technology announcements, including a surprise proprietary slide, have been impressive, the company remains a “show me” story amid more challenging market conditions, Barclays analyst Dan Levy and others said.

“With RIVN facing a tougher path to breaking even on core vehicle sales alone, we believe that with enhanced AV/AI capabilities, RIVN paves the way for more ancillary software/services revenue, which will be margin accretive,” Levy said Friday in a note to investors. “To be clear, there is definitely a ‘show me’ element to RIVN in terms of its capabilities.”

Challenges include declining demand for electric vehicles after $7,500 tax credits expired in September, a lack of other support under the Trump administration and infighting at the company over products and capital.

Several analysts noted that adoption of advanced driver assistance systems remains low across the industry, even at the leading U.S. electric vehicle company. TeslaAnd Rivian continues to catch up with other companies that have offered 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 allow the automaker to be more efficient, faster and better than others.

“AI enables us to create technology and customer experiences at a completely different rate than we’ve seen in the past,” Scaring said during the event.

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

The $12 price target for Rivian shares from Morgan Stanley, 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 may be able to license or sell its latest technology, including chips.

“RIVN is developing a range of hardware and software offerings to remain competitive in the Auto 2.0 world,” Morgan Stanley’s Andrew Percoco said in a note on Friday. “However, several risks remain around demand, which may limit the data capture needed to reach higher levels of autonomy.”

Morgan Stanley raised concerns about autonomy adoption rates, lackluster demand for electric vehicles ahead of Rivian’s new “R2” next year and a long path to profitability as reasons to affirm the rating.

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

Rivian continues to lose billions of dollars annually, despite significant cost cuts and gains in software revenue thanks to its deal with VW.

Rivian ended the third quarter with total liquidity of $7.7 billion, including approximately $7.1 billion in cash, cash equivalents and short-term investments that Scaringe said puts the company in a “very good” position for the launch of R2.

The R2 midsize SUV is crucial for Rivian — especially since it’s a key market in the United States. With an expected starting price of $45,000, it is expected to expand Rivian’s customer base and be a proof point for the company’s efforts in terms of profitability and cost savings.

Consumer models of Rivian’s current R1 pickup truck and SUV start at more than $70,000. It also builds electric delivery trucks, largely for its largest shareholders Amazonwhich starts at around $80,000.

“Profitability pressures are likely to intensify as Rivian introduces the roughly $45,000 R2 platform in the highly competitive midsize SUV segment,” Narayan said. “While targeting a lower price point can increase market reach, the R1 platform suffers from profitability despite being almost double the price of the R2 increase.”

Shares of Rivian, which have a market cap of $22.5 billion, have a price target of $15.43 per share, according to average ratings and estimates compiled by FactSet.

– CNBC Michael Bloom She contributed to this report.