Morgan Stanley Won't Call Rivian a Buy Despite Upgrade
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Why Morgan Stanley Won’t Call Rivian a Buy Despite Upgrade
Morgan Stanley’s decision not to call Rivian a buy despite upgrading its price target to $14 from $13 is telling. The firm maintains an underweight rating, citing concerns over execution risk and the company’s unprofitable car business.
The recent earnings report from Rivian has left investors puzzled, with a stock price drop despite beating nearly every number Wall Street was watching. Revenue jumped 27% year-over-year to $1.658 billion in the second quarter, and gross profit turned positive at $179 million. However, this profit is largely thanks to software and services revenue, primarily driven by Rivian’s joint venture with Volkswagen.
Investors are no longer willing to give companies the benefit of the doubt when it comes to profitability. Good quarters are no longer enough; they want proof that the ramp holds up and margins are actually achieved. This shift in investor expectations raises questions about what lies ahead for Rivian, as well as other electric vehicle (EV) makers like Tesla.
Rivian’s reliance on autonomy revenue to turn a profit is a high-risk strategy that may not pay off. The company’s joint venture with Volkswagen has generated significant revenue, but this figure is largely driven by software sales, not car production. The real test will come when Rivian launches point-to-point autonomy in select markets by year-end.
The EV industry’s shift towards reliance on software promises rather than manufacturing scale has significant implications for companies like Rivian and Tesla. Investors are increasingly looking for signs that these companies can execute on their promises, rather than simply relying on forecasted profits. This change in investor expectations raises questions about what lies ahead for the industry as a whole.
Rivian’s road ahead is paved with difficult choices, from managing production costs to executing on its autonomy plans. While the company has made progress in recent quarters, its stock price remains volatile due to concerns over execution risk. As investors watch closely for signs that Rivian can execute on its promises, the company will need to demonstrate its ability to navigate these challenges.
The outcome of this story is far from certain, but one thing is clear – the industry’s shortcut to profitability has become increasingly tenuous. Whether Rivian can emerge victorious remains to be seen, but the stakes are high, and investors will be watching closely as the company navigates these challenges.
Reader Views
- PRPat R. · frugal living writer
Morgan Stanley's reluctance to call Rivian a buy is a smart move considering the execution risks that still linger. What's striking is how many investors are overlooking the company's unprofitable car business in favor of its lucrative software sales. But let's not get carried away here – these software revenues are largely tied to the Volkswagen joint venture, and Rivian's true test will be when it launches autonomy services on a wider scale. Until then, we're still looking at a company with significant operational challenges ahead.
- SBSam B. · deal hunter
Morgan Stanley's tepid upgrade of Rivian is a warning sign that investors are getting wise to the EV industry's smoke-and-mirrors game. Analysts are finally factoring in the elephant in the room: most electric vehicle makers, including Rivian and Tesla, won't turn profits from actual car sales anytime soon. It's software revenue that's propping up these companies, at least for now. But when will they start delivering on their promised manufacturing scale and profit margins? Until then, investors would do well to keep a skeptical eye on the EV sector's profit projections.
- TCThe Cart Desk · editorial
Morgan Stanley's cautionary approach to Rivian is prudent given the electric vehicle maker's heavy reliance on Volkswagen-partnered software sales to mask its unprofitable car business. While investors are right to demand more than just growth numbers from EV companies like Rivian and Tesla, they should also consider the broader industry trend: traditional automakers are increasingly leveraging their own tech capabilities to stay ahead of upstart EV makers. This could put Rivian's autonomy-centric strategy at a disadvantage in the long run.