Tesla, Move Over. Rivian Is an AI EV Stock, Too.
Thursday, Morgan Stanley analyst Adam Jonas recently met with Rivian CEO R.J. Scaringe. Investors attended, and the conversation included managing losses and ramping production. Investors were interested in software, too.
Scaringe emphasized Rivian’s “structural advantages in their fully integrated software and perception stack, and opportunity for partnership,” wrote Jonas in a Friday report. That conversation “occupied a fairly large portion of the interactive discussion with a balance of auto and tech investors.”
A stack refers to software and hardware layers that enable things such as self-driving technology. “Rivian currently has five radars and 11 cameras as well as an AI-based [training] approach versus rules-based ‘deterministic’ [programming] approach,” added Jonas.
A reason for Rivian’s “structural” advantage is that the company is a pure-play EV start-up, unburned by any legacy technology, design, or brand expectations.
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Jonas sees Rivian as able to leverage that advantage by partnering with other auto makers who can use the company’s technology instead of developing it themselves.
“The reiteration of our Buy rating on Rivian in February was underpinned by our expectation for the company to participate in the trend of collaboration,” wrote Jonas. “In the wake of the ongoing EV shakeout, we expect to see both legacy and start-up auto [makers] look for ways to share costs.”
The shakeout refers to slowing EV demand growth. Through the first few months of 2024, year-over-year sales growth in the U.S., Europe, and China have decelerated to single-digit rates. That’s lower than 2023 levels when U.S. EV sales grew some 46%, European EV sales grew about 28%, and Chinese EV sales grew roughly 20%.
Jonas’ price target for Rivian stock is $13. Rivian stock was down 3.3% in midday trading Friday, at $10.60, while the
and
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were off 0.4% and 1%, respectively.
Rivian shares are typically more volatile than the market. The start-up is still losing money. The ability of Rivian to shrink losses and preserve cash is key to the realizing the AI opportunity, adds Jonas.
AI opportunity and advantaged technology “stacks” might sound familiar to investors. The terms come up most often regarding Tesla. It uses AI computing to train its driver assistance products. The idea is to make them better faster.
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Jonas is bullish on Tesla, too, rating shares at Buy with a $310 price target. (Tesla stock was at $175.49 in midday trading.) He’s also one of the few analysts who breaks down his Tesla valuation by each business.
Jonas values “Tesla Mobility” at $61 a share and “network services” at $100 a share.
Mobility is a potential robotaxi business—like an
network without drivers which Tesla can own and operate. Network services include subscriptions paid by Tesla owners for its driver assistance software. Tesla owners can pay $99 a month today to access Tesla’s highest-level driver assistance product called Full Self Driving.
The $161 per share valuation for self-driving technology is more than the $67 Jonas values the base car business at. With some 3.2 billion the self-driving opportunity Jonas sees is worth about $515 billion. The car business is worth $214 billion.
Write to Al Root at allen.root@dowjones.com
