After a blockbuster initial public offering (IPO) last year that saw shares of Rivian (NASDAQ:RIVN) skyrocket as high as $179, RIVN stock has seemingly cooled off. Rivian has been trading in the $90-$115 range since late November as investors try to accurately price the stock. This is not a straightforward task, as investors have to factor in a multitude of metrics that include forecasting future cash-flows and demand. However, investment bank Morgan Stanley recently released its top automobile stocks for 2022, and Rivian falls at No. 2. This is great news for Rivian bulls, so let’s take a deeper look into why Morgan Stanley is bullish.
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Morgan Stanley analyst Adam Jonas believes that 2022 will be a year of execution for automobile and electric vehicle (EV) companies. This statement puts pressure on the management teams of these companies, as it is up to them to take action and execute key decisions. Furthermore, Jonas added that buying Rivian stock is similar to buying “a call option on Amazon’s (NASDAQ:AMZN) need to address existential CO2 emissions.” While the analyst acknowledged that 2022 may be a volatile year for growth names, Jonas still believes that Rivian is “‘The One’ for your EV portfolio.”
Jonas has remained bullish on Rivian since the analyst lockup period after the IPO expired. The analyst carries a price target of $147, implying an upside of more than 40% from current prices. Furthermore, Jonas believes that Rivian’s combination of products, competent management team and access to capital will make the EV company a legitimate competitor to Tesla (NASDAQ:TSLA).
What Risks Does Rivian Stock Face?
There are also several key risks concerning Rivian that Morgan Stanley pointed out. The first risk is scalability. Indeed, this is something that Rivian is most likely to run into as it ramps up production of its EVs. Plus, current supply chain disruptions and chip shortages factors negatively into this risk.
The second risk is competition with other automobile producers, such as Ford (NYSE:F) and Tesla. Today, Ford announced that it would almost double its production of the F-150 Lightning due to an increase in demand. Investors can decipher this news in two contrasting ways. The positive viewpoint is that demand for and adoption of electric pickup trucks is rising. On the other hand, the negative viewpoint can be seen as Ford taking EV pickup truck market share from Rivian.
Finally, the last risk is the acquisition of capital. Morgan Stanley believes that Rivian will need another $14 billion in external capital to fund its expansion and production targets. The bank also believes that Rivian will remain cash-flow and earnings before interest, taxes, depreciation and amortization (EBITDA) negative all the way through fiscal year 2026.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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