Rivian is ‘the one’ that can challenge Tesla: Morgan Stanley

It’s been nearly a month since EV manufacturer Rivian (RIVN) went public on Nov. 10 with an initial offering price of $78 a share. Soon after the IPO, the company’s stock price surged to over $165, but has since cooled down to where it trades just over $110 today. According to a recent Morgan Stanley Research (MS) report, Morgan Stanley initiates on Rivian with an “overweight” rating and a price target of $147, citing Rivian’s potential to be a challenger to Tesla (TSLA).

“Rivian’s compelling product, strong management, and deterministic access to capital are underpinned by a strategic relationship with [Amazon] (AMZN) to decarbonize the final mile,” the report reads. “We see it as ‘the one’ that can challenge Tesla.”

With production and deliveries of vehicles expected this quarter, Morgan Stanley touted the capability and desirability of Rivian’s R1T pickup truck and R1S SUV, noting that the vehicles are standouts in the market at the $80,000 price point. The report also pointed to Rivian’s electric delivery vans as being a unique offering from the EV manufacturer.

IMAGE DISTRIBUTED FOR RIVIAN AUTOMOTIVE, LLC – Rivian R1T all-electric truck in Times Square on listing day, on Wednesday, Nov. 10, 2021 in New York. (Ann-Sophie Fjello-Jensen/AP Images for Rivian Automotive, LLC)

“The electric delivery van (EDV) has the potential to dominate the fast growing final mile EV fleet which has been largely unaddressed by the EV market until now,” the report reads.

Morgan Stanley is ultimately bullish on the outlook for orders of the EDV, upgrading its order estimate as Amazon makes efforts to electrify its delivery fleet.

“We think the 100k unit order from AMZN (from 2019) is a stale number. We think closer to 300k units is more likely through 2025/2026,” the report reads. “Rivian is a ‘call option’ on AMZN’s desire to decarbonize its delivery/fulfillment footprint in a highly visible way… delivering packages on your street multiple times per day.”

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For now, Morgan Stanley cited several key areas of risk for Rivian as the company begins ramping up manufacturing operations and prepares to fulfill vehicle orders. The first risk pertains to the company’s ability to scale production amid persisting supply chain disruptions and shortages going into the 2022 fiscal year.

The second risk, the report states, is the fierce competition within the EV space from the likes of Tesla.

“Comparing your valuation multiple to Tesla is easy. Competing against Tesla is hard,” the report reads. “We forecast close to ~$2tn of combined EV/battery expenditure globally through 2030. At the same time, we believe this new generation of EV makers like RIVN may struggle to gain access to key international EV markets like China.”

The third risk lies in Rivian’s funding; Morgan Stanley estimates that the company will need to raise an additional $14 billion in external capital to fund its expansion. On top of this, Morgan Stanley forecasts that Rivian will remain EBITDA and cash flow negative through the 2026 fiscal year.

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV

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