Piper Sandler thinks electric vehicle maker Rivian faces funding challenges to compete with Tesla. The firm downgraded Rivian from overweight to neutral on Thursday. Piper also cut its price target to $15 per share from $63 per share. The new target points to a marginal upside from Thursday’s close. “We still like Rivian’s strategy, which uses vertical integration to capture lucrative post-sales revenue (eg, software, services and billing),” analyst Alexander Potter wrote. “The problem is that this strategy is costly. For RIVN to justify its cost structure, the company must spread its investment over millions of units (just like Tesla does), and to finance such an aggressive expansion, RIVN will have to need capital.” Potter added that for Rivian to improve its cash burn, the company must deal with the high costs associated with controlling all aspects of vehicle production from start to finish, as rival Tesla does. He says the company has the mark to compete with the high-end segment of the industry, but will have to cut costs and outsource some production like batteries and software. Much of the company’s downgrade stems from Piper Sandler valuing Rivian at book value as opposed to a valuation based on discounted cash flows. Potter said his previous rating was based on the company producing more than three million vehicles per year, compared to the company currently making around 500,000 to 700,000 vehicles per year. “Given cash constraints and disparaging financial markets, we believe most investors are currently unwilling to pay for RIVN’s long-term prospects,” Potter said. Rivian shares fell more than 3% after the downgrade. Stocks have struggled this year, losing 22%. Over the past 12 months, it has fallen by 64.6%. – CNBC’s Michael Bloom contributed to this report.
