Rivian Automotive

Rivian reported improved results in the second quarter, as revenue growth from higher deliveries and software drove a year-over-year improvement in operating loss.

Why it matters: Rivian shares were up in after-hours trading as the market reacted to management's guidance for a smaller adjusted EBITDA loss versus the prior outlook. Directionally, the results and guidance were in line with our view that as Rivian's new midsize sport utility vehicle, the R2, ramps up production and deliveries, results will improve. We forecast gross profits and adjusted EBITDA will turn positive in 2027 and 2028, respectively. Management confirmed our view that the company is on track to launch its Level 2 autonomous driving software by the end of the year, with a goal to launch Level 3 and Level 4 software in the coming years. This should enable robotaxis and drive up autonomous software pricing.

The bottom line: We raise our fair value estimate to $22 from $20 for no-moat Rivian. The increase is due to higher regulatory credit sales driving improved near-term profit margins. This results in a lower 2026 adjusted EBITDA loss than our prior forecast. At current prices, we view Rivian as undervalued, with the stock trading a little more than 20% below our updated fair value estimate, placing shares in 4-star territory. We point to improved profitability and increased autonomous-vehicle software capabilities as catalysts for the stock. We see Rivian's technology, namely its autonomous driving software and vehicle architecture electronic control units, as long-term profit growth drivers for the company. We forecast that software and services will account for two-thirds of companywide profits over the long term.

Our fair value estimate is $22 per share. We use a weighted average cost of capital of around 9%.

In 2026, we forecast vehicle deliveries will come in around 65,000, up over 50% versus 42,247 in 2025. We expect US EV sales to decline in 2026 due to the expiration of the US EV tax credit in September 2025. However, we see growth for Rivian as the company launches its new midsize SUV under the R2 platform. As Rivian is ramping up production of its new vehicles, we expect automotive gross margin to be negative in 2026. However, we see gross margin turning positive in 2027 as production ramps up and Rivian benefits from scale-based operating leverage.

Long-term, we assume Rivian will successfully ramp up its Georgia production plant. We forecast deliveries will be roughly 375,000 vehicles per year in 2030, as we think the midsize SUVs will prove successful and most deliveries will come from the R2 and R3 platforms over time. We think Rivian will be successful in continuing to reduce its manufacturing costs on a per-vehicle basis. We forecast the automotive segment gross margin will remain positive after 2027 and expand to 10% by the end of the decade.

We assume overhead expenses will decline as a percentage of sales as the company benefits from operating leverage as deliveries grow. As a result, we forecast companywide operating profits will turn positive by 2030. We also forecast positive free cash flow by 2030. To fund this growth, we assume Rivian will spend nearly $15 billion in capital expenditures over the next decade.

In software and services, we assume the joint venture with Volkswagen progresses as planned and Rivian meets all milestones for investment from Volkswagen. We also assume Rivian is successful in developing its autonomous vehicle software and forecast it will be able to raise prices from roughly $50 per month today for Level 2 to $200 per month for a Level 4 version, which is in line with our forecast for Tesla’s full self-driving product. We assume Rivian will launch this Level 4 software by the end of the decade, and it drives increased adoption of its AV among Rivian drivers over time. Finally, we assume Rivian's software is successful, and the company is able to get its vehicles on the Uber ride-hailing network. Here, we assume Rivian gets a 25% share of each ride as the software provider. This boosts vehicle deliveries and adds an additional high-margin software revenue stream for the company.

We assume Rivian will need to raise an additional $2 billion in equity and debt split between 2028 and 2029 to fund expenses as it ramps up the Georgia plant.

Given the wide range of outcomes, we also model upside and downside scenarios.

Our upside-scenario fair value estimate is $50. In this scenario, we assume higher deliveries and profitability versus our base case. Additionally, Rivian’s autonomous driving software sees a higher price and higher adoption among Rivian owners. Finally, we assume Rivian sees a higher robotaxi take rate and benefits from more rides per day on average versus our base case.

Our downside-scenario fair value estimate is $5. In this scenario, we assume lower deliveries and profitability versus our base case and assume Rivian is forced to cut prices amid increasing competition. We also assume lower adoption of autonomous driving software, a lower priced software product, and no ride-hailing revenue.

We don't believe Rivian has a moat.

Rivian’s main business is producing and selling vehicles, as the automotive segment generates the majority of revenue. Vehicle manufacturing is a very capital-intensive business, with relatively low barriers to entry. To establish a moat, we would typically need to see a brand intangible asset or a cost advantage that drives returns on invested capital above a company’s weighted average cost of capital. The US auto industry is full of strong competition, making it very difficult to establish a brand that commands pricing power. We credit Rivian with entering the market with its truck and SUV products and establishing itself as a luxury automaker. The company plans to grow deliveries through its midsize SUV product, which will be in the entry-level luxury category.

Rivian is aiming to reduce its vehicle manufacturing costs over time to make its vehicles profitable. The company has recently generated a positive gross profit for its vehicles, yet is still unprofitable when including overhead costs, including selling and marketing expenses, and research and development costs. We think the company can grow sales and eventually generate profits and positive free cash flow. Yet, we see a high threat of material value destruction that precludes a moat rating. This is because the company’s success depends on its new models gaining share with consumers, which could not occur, leading to material value destruction.

In the software and services segment, Rivian’s joint venture with Volkswagen will produce electronic control units to be used in new Volkswagen electric vehicle models. We think this business will likely grow as its ability to provide central vehicle controls can allow new Volkswagen models to greatly reduce their manufacturing costs and be able to compete with low-cost Chinese EVs in the European market. We see traces of switching costs in this business, like top-tier auto suppliers. This segment also contains Rivian’s autonomous driving software. Here, we see the potential for strong success that can make the company’s vehicles more favorable with consumers and generate strong returns on invested capital over time. However, we also see the threat of material value destruction. Rivian is making a large investment in its software development, with no guarantee it will be able to develop software that is Level 3 or above, which is when the vehicle takes over driving functions for some or all of the time. If unsuccessful, this investment would lead to material value destruction.

Overall, we see traces of a brand intangible asset and switching costs. Yet, the threat of material value destruction looms if the company is unsuccessful, which leads to our no moat rating.

Rivian’s new R2 vehicle will become popular among midsize SUVs, which is the largest auto category in the US by volume.

Rivian will become profitable and generate positive free cash flow from positive operating leverage as the company ramps up production, greatly reducing unit production costs, and develops autonomous driving software.

Rivian will successfully develop autonomous driving software that will boost vehicle sales and generate strong, high-margin software revenue, including software to be used in robotaxis on the Uber ride-hailing network.

Rivian will remain unprofitable as it will face increased competition in the midsize CUV market, forcing the company to cut prices.

Rivian’s large investment to build a new factory in Georgia will prove value-destructive, as demand for its midsize SUVs will be far lower than its new capacity.

Rivian will be unable to successfully develop autonomous driving software with Level 4 capabilities, which will result in little incremental revenue or profit growth.