Should you buy these two distressed EV stocks? Rivian and Lucid in focus
These are not the best times for the electric vehicle sector. Against a fragile economic backdrop, what not long ago seemed like a nascent industry on the cusp of mainstream adoption is suffering from sluggish demand. In addition, operating under the current high interest rates amid a highly competitive environment has become increasingly difficult for many companies trying to ride this secular trend.
The distress has spread across the board and, of course, also affected electric vehicle stocks. Shares of sector leader Tesla have suffered in recent months, but as the king of electric cars, its withdrawal has been far less pronounced than that of smaller companies vying for a piece of the action.
Companies like Rivian Automotive (NASDAQ:RIVN) And Lucid Group (NASDAQ:LCID), for example, whose shares have taken a beating over the past 12 months and are down 53% and 69%, respectively. But with their stock prices falling so much, is it time to start buying companies like them?
Needham analyst Chris Pearce has been keeping an eye on these two and recently evaluated their prospects, so we decided to see what he makes of their chances. Additionally, we also used TipRanks’ database to see what the rest of the Street expects the future to be like for these names. Let’s check the results.
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Rivian the cars
Back in November 2021, Rivian made a lot of noise when it hit the public markets in a massive IPO, while bolstering its credentials with backing from Amazon and Ford. The modus operandi has been to become a dominant player in the electric vehicle industry, offering top-tier electric trucks and SUVs.
However, this proved to be more difficult than initially expected. The ramp-up of its premium electric truck – the R1T – has run into serious problems, and the company has faced a wide range of production difficulties, including problems related to chip shortages, coronavirus-related disruptions, and the reorganization of vehicle assembly lines. These problems disrupted production and also had a negative impact on investor confidence.
But while investor sentiment may still be fragile, Rivian appears to have addressed many of the issues that initially plagued it, and its recently released third-quarter report had enough silver linings to suggest that the company may be turning the corner.
Even against the backdrop of weak demand, the company delivered a record 15,564 cars in the quarter, exceeding the expected 14,900 cars on the street. There were other positive results as well, with revenue increasing a staggering 150% year over year to $1.34 billion, beating analysts’ expectations by $30 million. Likewise, on the bottom line, adjusted EPS of -$1.19 performed significantly better than the consensus estimate of -$1.34. Looking ahead, Rivian raised its full-year production forecast from 52,000 units to 54,000 units, beating Wall Street’s forecast of 53,600 units.
Assessing these strong results, Needham’s Pearce calls Rivian a “safe haven against weak EV adoption sentiment” and sees plenty of reasons to support this EV player. “RIVN has order book visibility through ’24 and is likely to see an increase in service providers as it introduces new variants (Max Battery Pack) and burns bookings made at lower prices, with margins improving as higher production increases absorption of fixed costs as well as invoice visibility. “Lower material costs from suppliers are helping per unit of costs,” Pearce said. “We are struggling to find an issue with the business direction and financial model, with the backdrop of interest rates and current low investor patience levels being factors beyond RIVN’s control.”
“We continue to see RIVN deserving of both long-term visibility and a premium multiple as it increasingly looks like a winner in the ICE-to-EV transition, with strong demand metrics, pricing strength, and improving margins while peers struggle in all three categories,” Pearce went on to add.
Accordingly, Pierce keeps RIVN on his condemn list, reiterating a Buy rating as well as a $25 price target. If this is true, investors could line their pockets with a 63% gain.
This price target is slightly lower than the average price on the Street, which currently stands at $26.32, giving room for a 12-month return of approximately 72%. Finally, the stock has a Moderate Buy consensus rating, based on 13 Buys, 7 Holds and 1 Sell. (be seen Rivian stock forecast)
The difficulties faced by the electric vehicle industry and its stocks, in particular, are summed up well by Lucid Group. However, the company actually has several aces up its sleeve, one being CEO Peter Rawlinson, formerly of Tesla and chief engineer of the Model S, and the other being the critically acclaimed Lucid Air, an award-winning electric sedan It is considered one of the best cars in the world. Electric cars on the market.
Despite this impressive introduction, the company was unable to overcome many problems that hindered its progress. Difficult macro conditions have hit Lucid particularly hard, prompting the company to repeatedly lower its production forecasts. This was the case again in the recently reported Q3 edition. Lucid now expects to produce between 8,000 and 8,500 vehicles this year, down from a previous forecast of 10,000 vehicles.
The company delivered 1,457 vehicles in the quarter, resulting in revenue of $137.8 million. Not only does this represent a 29.5% decline compared to the same period last year, but it is also $57.4 million below expectations. However, while the adjusted EBITDA loss widened from $552.9 million in 3Q22 to -$624.1 million, the figure exceeded the Street’s forecast of -$701 million and is evidence that its cost management efforts are… Lucid pays off.
At the same time, investors are starting to lose faith in this name, with shares, as mentioned above, falling by about 70% over the past 12 months. However, Needham Pierce remains on board for now. However, he believes it will be difficult for sentiment to turn positive again without concrete evidence that the business is on the right track.
After reading the third quarter, Pierce wrote: “We continue to believe in LCID’s industry-leading battery and driveline technology, and we continue to see legacy OEMs struggling to make affordable electric vehicles, with LCID as a potential technology partner willing to drive down costs, particularly on world level. Battery technology side, but we are lowering our estimates again due to lower deliveries, leading to lower margins, with the potential upside postponed by a year in our model. The launch of LCID’s Gravity SUV is a potential catalyst, as are increased units to meet a greater number of orders from Saudi Arabia, but hard evidence of better numbers is difficult to spot currently.
As such, Pierce maintains a Buy rating on LCID shares along with a $5 price target, which implies an upside of 33% from current levels.
However, Pierce is currently the only LCID bull on the street. Elsewhere, the stock receives an additional 6 Holds and 2 Sells, for a Hold consensus rating. However, most seem to think the stock is now somewhat undervalued; The $5.19 average target lends itself to a 12-month gain of 38%. (be seen Lucid Group stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.