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Rivian earnings: Investors wrote the stock off after early ‘horror show,’ analyst says

Wedbush Managing Director and Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss Rivian earnings, the opportunity for EV makers like Tesla, and whether the Elon Musk-Twitter deal goes through.

Video transcript

BRIAN CHEUNG: Well, highlighting shares of Rivian which are moving in extended hours up about 4% actually after the company posted its numbers. So let's get a little bit of a deeper dive into the report with Dan Ives, Wedbush managing director and senior equity analyst. I just want to break down the numbers here. 4,400 vehicles that they produced. They still reiterated a production guidance of 25,000 units for the year. Is that optimistic, given the supply chain issues that not only they but everyone else is facing?

DAN IVES: [INAUDIBLE] I mean, when it comes down to it, it's all about 25,000. And I think that could be conservative that they're going to hit. And reservations is important. Reservations went from 90,000 to 98,000. It shows incrementally that they're starting to see that demand continued despite some of the recessionary fears. Overall, I think this is a stock from here that continues to go meaningfully higher.

RACHELLE AKUFFO: So Dan, do you think Rivian is finally finding its sea legs after that bumpy rollout with production at the beginning?

DAN IVES: Yeah, I think bumpy would be a nice word. I mean, I'd call it a horror show, Friday the 13th in terms of that first six months out of the gate. And I think a lot of investors threw the story away. But I think if you look at the ultimate demand opportunity, it's significant. And we're going to see in terms of EV, especially in the pickup space, F-150 coming out next year, Cybertruck second half of the year. But when it comes to Rivian, and this is a pretty big opportunity here.

I mean, we need to be, from a Ram perspective, in the hundreds of thousands per units per year. And then gross margin starts to go positive in late 2023-2024. And I think that's what you're seeing here in terms of the story.

BRIAN CHEUNG: Yeah, and clearly investors willing to continue to watch the growth stage of this company. They did have a loss here. But look, at the end of the day, we talk about the backlog. 98,000 units on the backlog. But do you think there's going to be a pull forward from what we talked about with our auto supporter Pras Subramanian earlier because of the fact that they're going to offer reservation holders the ability to sign those binding purchasing agreements to kind of preserve that $7,500 federal tax credit, which might be going away for Rivian purchasers if that new Inflation Reduction Act gets passed?

DAN IVES: Yeah, I think you could see a bit of a pull forward. But I also think there could be some changes there that could ultimately help Rivian, at least from a tax credit perspective, based on ultimately where the batteries are coming from and why their production-- remember, this is a company talking about US production.

Doubling down in terms of Atlanta, the buildout that they'll have there, of course, they have the flagship factory in Normal, Illinois. And look, I think after what I'll call a very, very bumpy road, this is on the right track. And I think this quarter, a major step in the right direction. And I think that's how investors are going to interpret it.

RACHELLE AKUFFO: And Dan, in their shareholder letter, they talked about their rollout with Amazon. How important are these sorts of partnerships to really propelling Rivian forward?

DAN IVES: Look, Amazon has been the linchpin. I mean, this was almost the golden child of Bezos, the commercial story in terms of 100,000 Rivians that will ultimately supply Amazon. In terms of from a startup perspective, I mean, they had almost 10 billion in terms of capital raised. So that's how Rivian hits the ground running. And Amazon has been a big piece of the story. We wouldn't be talking about Rivian if it's not for Amazon.

And I think that's-- anyone that's seen a Rivian on the road, you're starting to see them pop up around the US and different cities. It's a special car. I think it goes after a very niche area of the market. And also, it's about vertical integration. The software is one of the key pieces in terms of the valuation as this all plays out.

BRIAN CHEUNG: So aside from kind of that specific vehicle, obviously if you talk about kind of the big flagship vehicles that they're making, one competitor to that might have been the Cybertruck from Tesla. But it seems like the movement on that, not going quite as fast. I mean, how much of a threat do you think that poses to the EV truck market, especially when you throw in the F-150 kind of in the mix as well?

DAN IVES: Well, I think F-150 is the big one. I mean, I think that could be probably one of the more seminal releases for EVs outside of Tesla that we've seen to date. And I think when you look at the market, there's opportunity for more than one winner. I do believe the F-150 and what Farley is doing is going to have significant success there. And then I believe the Cybertruck is second half. And we've talked about reservations that could be upwards of 700,000 pre-orders.

And then you look where Rivian is. And this is just-- it's early stages in this whole market playing out. But I do believe finally Rivian has figured out that formula especially after what was I think a lot investors viewed it as this was sort of a pivotal fork in the road one to two quarters. And I think they've been successful now.

RACHELLE AKUFFO: And Dan, looking at your price target for Rivian, what do you see as perhaps some of the risks to that price target that you should be keeping an eye on?

DAN IVES: Look, I think the biggest risk, it's really about production. Because this is always-- this is a story it's going to be one eye open. Investors are fearful as we go-- if we don't see more moderation in the supply chain, can they hit their production numbers? You got 98,000 reservations. But you need to ultimately fill that out. And obviously, outside of Tesla, this has been choppy in terms of execution stories across EVs.

I think this is a success-- this quarter, last quarter. But any bump in the road over the next three to four quarters will be exacerbated. And this is a stock that would move lower. I continue to think more positively. But I think that's how this is going to ultimately play out from an investor perspective.

BRIAN CHEUNG: And then lastly, Dan, we can't let you go without asking about Elon Musk, and completely shifting aside from Rivian. But the big news from Elon yesterday, he's going to sell almost eight million Tesla shares worth about $7 billion roughly. Thoughts on that.

DAN IVES: I think writing is on the wall. And he's going to have to do the Twitter deal. Otherwise, he's going to-- with the weekend going into Delaware courts, probably a settlement in the five to 10 billion range. So I think this is really a poker move, street saw through it. I ultimately think the Twitter deal gets done before they even step foot in Delaware courts in October.

RACHELLE AKUFFO: I mean, imagine. This all just started with a tweet, should I buy Twitter? And now look where we are. A big thank you, as always, to Dan Ives there from Wedbush Securities. Thank you so much.

DAN IVES: Thank you.