Introduction

Rivian (NASDAQ:RIVN) may have faced significant challenges in the stock market throughout 2023, but there’s new optimism on the horizon. Benchmark analyst Michael Legg believes that Rivian is positioned to capture a substantial share of the expanding electric vehicle (EV) market in the coming decade.

Market Size and Growth

But just how massive is this market? According to industry estimates by the Edison Electric Institute (EEI), the number of electric vehicles on U.S. roads is set to skyrocket from 4.5 million in 2023 to a staggering 78.5 million by 2035. This indicates a compound annual growth rate (CAGR) of 26.9%. By 2050, it’s projected that a remarkable 89% of all vehicles in the U.S. will be battery electric vehicles (BEVs) or plug-in hybrids, compared to just 12% in 2023.

Challenges in 2023

Despite the long-term prospects, 2023 has proven to be a challenging year, with several major automakers delaying or scaling back their EV launches, leading to a slowdown in growth. In the first half of 2024, U.S. EV sales saw a mere 7.3% increase—a stark contrast to the 47% surge in the same period of 2023. However, experts anticipate a rebound in U.S. EV production starting in 2025, with further acceleration expected in 2026-2027. This change is driven by falling average selling prices (ASPs) for EVs compared to internal combustion engine (ICE) vehicles and the expansion of charging infrastructure.

Rivian's Unique Position

Rivian stands out among emerging EV manufacturers for several reasons, according to Legg. His analysis highlights the company’s ability to produce EVs domestically and its investment in in-house software development, a strategy that has been validated through strategic partnerships with tech giants like Amazon and automotive leader Volkswagen.

Key Partnerships

The relationship with Amazon, established in 2019, includes a commitment to deliver 100,000 electric delivery vans (EDVs) by 2030, 15,000 of which have already been supplied. Rivian recently exited its exclusivity agreement with Amazon in November 2023 and forged a new partnership with AT&T in December. These collaborations provide Rivian with a stable revenue foundation as it focuses on growing its consumer vehicle sales.

Joint Venture with Volkswagen

Additionally, Rivian's joint venture with Volkswagen, valued at up to $5.8 billion, leverages its proprietary software and electrical architecture, including crucial electronic control units (ECUs). Legg believes this funding will be instrumental for Rivian’s operations and growth strategies, while VW’s extensive industry experience and connections will enhance Rivian's supplier negotiations and engineering capabilities.

Investment Outlook

In terms of investment, Legg has initiated coverage of Rivian with a 'Buy' rating and set a price target of $18. If achieved, this could yield investors returns of approximately 25% over the next year. The market analysis offers a mixed bag, however; Rivian currently holds a consensus rating of 'Moderate Buy' based on 9 buy, 10 hold, and 1 sell recommendations, with an average price target of $15, indicating a modest upside of around 4% from current price levels.

Conclusion

Investors and automotive enthusiasts alike should keep a close eye on Rivian as it navigates this pivotal time. With strategic partnerships, anticipated market growth, and innovative planning, Rivian could very well be on the brink of a significant turnaround. Will you miss out on this potential breakthrough in the EV sector?