Deutsche Bank Lead U.S. Analyst Emmanuel Rosner calls into Yahoo Finance Live to evaluate Rivian's growth outlook after going public this past November and how it compares to EV manufacturing competitors.
- Wall Street brokerages involved in Rivian's IPO are now launching coverage of the stock. And overall, analysts believe that the EV maker is a long-term winner. Deutsche Bank analyst Emmanuel Rosner just initiated coverage of Rivian with a buy, and has a price target of $130 a share.
And he joins us now. Emmanuel, thanks so much for being with us. So do you believe that Rivian is Tesla's next big competitor?
EMMANUEL ROSNER: Yes. Thanks very much for having me. So we really think Rivian has a very well-thought-out business plan to become a large and profitable EV player, has very unique characteristics in terms of both the hardware, the vehicles they're making, as well as really strong, well-thought-out plan on the software side.
I think the issue of competition here doesn't apply immediately. The reason for this is electric vehicles are still such a small portion of overall auto sales. I think that they will take share from incumbents, from combustion engine vehicles, with room for a lot of these credible EV plays to actually continue growing extremely fast. We're also are not looking at similar segments either.
As you know, Rivian is starting with a pickup truck, a full-size SUV, some delivery vans. Obviously, Tesla has been focused on much more affordable vehicles, actually making their way down towards like smaller sedans, smaller SUVs. So these are not direct head-to-head competitors for the time being, but we certainly think there's room for both of them to grow very fast.
- Emmanuel, it has some strong backing from Amazon, but how many cars or trucks has it actually rolled out and produced? So why is there this conviction, when I believe they have very few that are rolled out? And competitors, like Lucid as well.
EMMANUEL ROSNER: Yeah. So you're correct, the startup production has really only been this quarter. So it's only been a few weeks that they're starting to make those vehicles. Deliveries are going to start also this quarter. So we're talking about certainly low number of units with some pretty aggressive plans to roll that up over the next few years.
The Amazon partnership is actually a really strong feature of the story, because Amazon is not only a big customer but it is also 20% owner in the company. And they've already placed an order for 100,000 last mile delivery vans. And so they risked a lot on the demand side. This also is a truck that has been designed together with Amazon.
So it's really fits very much the need of this last mile delivery business. And even the software, the fleet management has been designed together with Amazon and provides some really attractive features that could be used by Amazon on all its vans eventually, and then potentially by other fleet companies as well. So I think you're right, in terms of execution they need to produce, they need to produce on time and on quality, and they're really just at the beginning of it. But in terms of the outlook, they already have a very strong order book and an extremely dedicated strong partner.
- And I want to talk for a minute about their hardware, the hardware side of the business at Rivian. I know they've got this skateboard platform that they keep talking about that differentiates them from others on the market. But how much of a game changer is that, and how important is it for this company to grab a bunch of market share, or is it enough just to capture a niche part of this market and do OK?
EMMANUEL ROSNER: So that's a great question. So their architecture is fully flexible. Essentially, they've designed one, that skateboard, which can support essentially all types of vehicles off of it, whether it's for personal or commercial application, small, mid-sized, large-sized, luxury, sedan. It's really all supported of the same platform.
And what it does, Rivian plans to launch two to three new vehicles every year at an extremely, extremely rapid cadence. They're right now in the process of actually starting production from scratch with three models at the same time, which is not something that has really been done before. That's really because it's all based off of the same EV architecture. I think the advantage of it is really on the market share side and on the economies of scale, because you do not have to make heroic gains in terms of market share in any given segment in order for them to get economies of scale.
They could sell essentially 50,000 pickups, 50,000 SUVs, or 100,000 vans to Amazon and still basically have multi 100,000 units off of the same platform, getting the cost base that they need to get to and the economies of scale. So this is something that's not completely unique. I would flag GM, the Ultium platform is also a common platform, which will support everything. But this is really something that they were able to essentially observe all the other EV startups and learn from their mistakes, and essentially come up with what seems to be a fairly well thought-out strategy.
- Really quickly, I want to ask you one of the issues that Rivian faces, and all EV makers, traditional car-makers for that matter as well, is higher costs associated with getting the parts and making the parts. So would removing Trump-era tariffs on some of those car parts that help with batteries, for example, be something that's beneficial? Should that happen?
EMMANUEL ROSNER: Yeah. No, absolutely. I think this is an industry that's extremely dependent on supply chain. I think ultimately the goal is to localize everything. And a piece of the Rivian story that we haven't spoken about is essentially they want to make their own battery cells as part of these IPO proceeds. They're going to be building not only two factories for the vehicles but also some battery plants as well. And ultimately the want to be making theirs locally themselves.
So there is definitely a need to localize the supply chain. They're very exposed to it as an industry. I would say in the case of Rivian, their cost is probably not going to be a big piece of focus of the story for the next few years because they are expected, as part of this plan, to be unprofitable for a number of years while they invest in growth.
So I think the losses, cash burnouts, are somewhat expected. I think the goal is to get to a profitable level of operations in a few years down the line when they acquire scale.
- All right. We're going to leave it there. Deutsche Bank analyst, Emmanuel Rosner, thanks for sharing your thoughts on Rivian and the EV space with us today.