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

Rivian Automotive The company surprised Wall Street on Thursday with its plans for artificial intelligence, automation and homegrown silicon chips, but the electric car maker still faces significant demand and capital challenges.

Despite some optimism from Wall Street analysts following Rivian’s first Autonomy and AI Day, the company’s stock fell 6.1% to close at $16.43 per share on Thursday. But the stock rebounded in intraday trading on Friday, rising more than 15%.

While many analysts did not change their ratings or price targets in the wake of the incident, Needham raised Rivian’s price target by 64% to $23 per share. The company did so due to technology announcements, potential future licensing agreements, and better-than-consensus expectations for next year’s deliveries of its new R2 midsize SUV.

“RIVN signaled a shift from (automakers) embracing autonomy to manufacturers leveraging AI to build end-to-end autonomy,” Needham analyst Chris Pearce said in a note to investors on Friday.

Although the company’s stock price was rising in the lead-up to AI Day, many analysts believed that the announcements at the event were already “priced in.” Shares also fell after OpenAI made its own AI announcement on Thursday, revealing its most advanced model yet.

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

Rivian’s announcement included its own chip, RAP1, designed for “physical AI,” or self-driving. Evolved software architecture, or the “brain” of the vehicle. New AI assistant. and a roadmap to reach “Personal L4,” or fully autonomous, personally owned vehicles.

The latter will begin with an update later this month that includes a hands-free driving system, with plans to continue expanding its capabilities until the vehicle reaches full autonomy within the next few years. Rivian did not say when it will have fully autonomous vehicles or self-driving vehicles in its robotaxi fleet.

Ahead of the event, Rivian stock rose more than 30% to $17.50. Despite this increase, the stock remains well below the company’s 2021 IPO level ($78 per share).

Barclays analyst Dan Levy and others said Rivian’s technology announcements, including a surprise proprietary chip, were impressive, but the company remains a “show-me” story in a tougher market environment.

“While RIVN faces a tough path to breakeven on core vehicle sales alone, we believe that enhanced AV/AI capabilities further pave RIVN with a path to additional software/services revenue and accretive margins,” Levy said in a note to investors on Friday. “To be clear, there is definitely a ‘show me’ element to RIVN’s capabilities.”

Challenges include weak demand for electric vehicles after the $7,500 tax credit expired in September, a lack of other support under the Trump administration, and internal struggles over product and capital.

Analysts noted that even with the U.S. EV leader, adoption of advanced driver assistance systems remains low across the industry. 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 argued that vertical integration of internal capabilities, including software, AI, vehicle platforms and other technologies, will make the automaker more efficient, faster and better than its competitors.

“AI allows us to create technology and customer experiences at a completely different speed than ever before,” Scaringe said during the event.

Those discussions, as well as the company’s previous $5.8 billion joint software deal with Volkswagen, have led Wall Street to price Rivian’s software business higher than its core EV manufacturing and sales, given market conditions.

Morgan Stanley, which recently downgraded the company to underweight, has a price target of $12 for Rivian stock, including $7 for software and services and $5 for the core automotive business. Analysts added that Rivian may license or sell cutting-edge technology, including chips.

“RIVN is developing a suite of hardware and software to remain competitive in the Auto 2.0 world. However, some risks remain regarding demand, which could limit the data collection needed to achieve higher levels of autonomy,” Morgan Stanley’s Andrew Percoco said in a note Friday.

Morgan Stanley cited concerns about the rate of adoption of autonomous vehicles, sluggish EV demand ahead of next year’s release of Rivian’s new R2, and the protracted path to profitability.

RBC Capital Markets analyst Tom Narayan agreed: “While these advances strengthen Rivian’s product offering, they do not address ongoing concerns around liquidity and R2/R3 profitability.”

Rivian continues to lose billions of dollars every year, despite significant cost savings and increased software revenue thanks to its deal with VW.

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

The R2 midsize SUV is extremely important to Rivian — especially in its key market of the U.S. With an expected starting price of $45,000, it is expected to expand Rivian’s customer base and demonstrate the company’s commitment to profitability and cost reduction.

Prices for Rivian’s current R1 pickup truck and SUV consumer models start at more than $70,000. The company also manufactures electric delivery vans, primarily for its largest shareholder. Amazonstarting at about $80,000.

“Profitability pressures are likely to intensify as Rivian deploys its approximately $45,000 R2 platform in the highly competitive midsize SUV segment,” Narayan said. “Targeting a lower price point could potentially increase market reach, but the R1 platform has struggled for profitability despite being priced at nearly double the R2 markup.”

Rivian stock, which has a market capitalization of $22.5 billion, is rated unchanged with a price target of $15.43 per share, according to average valuations and estimates compiled by FactSet.

—CNBC’s Michael Bloom contributed to this report.