2024 Outlook: Analyzing RIVN’s Competitive Edge Gained From AT&T Partnership

The automotive industry is witnessing a major seismic shift toward technological advancements. Electric vehicles (EVs) are becoming mainstream at an unprecedented rate, showing no signs of slowing down in the upcoming decade. The U.S. EV sales surpassed the 300,000 mark for the first time in 2023's third quarter.

Despite the turbulence created by widespread price wars throughout 2023, coupled with inflation and surplus inventory, the EV market continues to ascend. Even though the growth hasn't been as vigorous as initially forecasted, companies like Rivian Automotive, Inc. (RIVN) continue to carry momentum into 2024, recently enhancing its prospects with positive news.

Wireless carrier AT&T Inc. (T) has entered into a partnership agreement with RIVN, announcing its decision to receive a range of pilot electric delivery vans (EDVs), R1T pickup trucks, and R1S sport utility vehicles commencing in 2024. The main objectives of this joint venture are to assess cost-efficiency, amplify safety measures, and reduce the carbon footprint.

For many years, T has been progressively converting its commercial fleet into vehicles operating on alternative fuels, including compressed natural gas and hybrid electric vehicles. To meet its ambitious goal of achieving carbon neutrality by 2035, T is leveraging EVs coupled with route optimization and artificial intelligence (AI). Adding to this initiative, T is the exclusive provider of connectivity for RIVN vehicles, facilitating seamless over-the-air (OTA) software updates.

Considering stringent environmental, social, and corporate governance (ESG) goals and emission reduction targets, companies are fiercely competing to transition toward zero-emission fleets. High interest rates have posed affordability challenges for consumers as they increase the already hefty price tags of EVs compared to traditional gas-powered vehicles, leading to raised concerns over softening demands.

RIVN reported considerable interest and demand for its electric vans. In November, the company announced it was in dialogues with other potential customers, reinforcing speculations of additional EDV partnerships on the horizon for RIVN despite not revealing any specific names.

Last month, RIVN ended its exclusivity deal with Amazon (AMZN) for its EDV. This move provides RIVN with the opportunity to market its EDVs to a broader client base, with T reportedly being its first outside customer. The termination doesn’t impact the previously stated commitment from RIVN to fulfill an order of 100,000 vans for AMZN by the end of this decade. Indicative of progressive momentum, AMZN already had over 10,000 Rivian EDVs in operation as of October.

Moreover, RIVN also outlined its production strategy for the near future. The manufacturing plant in Normal, Illinois, is scheduled to cease operations for a single week at the closing of 2023 in anticipation of a more extended shutdown in mid-2024.

This hiatus aims to facilitate extensive line modifications and advancements, including part design changes, component simplification, and optimizations to elements such as the HVAC system and vehicle body structure. While these temporary production halts are expected to reduce output in the short term, they are deemed necessary to enable cost reductions and augment long-term production capacity.

“The impacts of the shutdown are temporary in nature, but the benefits will be there for the future,” said RIVN’s chief financial officer, Claire McDonough.


Last month, Irvine, California-based RIVN raised its production forecast for the full year by 2,000 vehicles to 54,000 units on the back of sustained demand for its trucks and SUVs. Management forecasts 2023 adjusted EBITDA of negative $4 billion.

Analysts expect RIVN’s revenue to surge 164.6% year-over-year to $4.39 billion, while EPS is expected to stay negative at $4.92 for the fiscal year ending December 2023.

Moreover, RIVN’s stock is trading above its 50-, 100-, and 200-day moving averages, indicating an uptrend. Wall Street analysts expect the stock to reach $25.63 in the next 12 months, indicating a potential upside of 8.9%. The price target ranges from a low of $15 to a high of $40.

What are the Bumps in the road for RIVN?

Since its IPO two years ago, the automaker has experienced a tumultuous journey due to overall market conditions and operational challenges. Widespread supply-chain disruptions have further exacerbated conditions for the entire automobile industry, with RIVN facing its unique set of complexities during its launch. Some challenges the company encountered included product recalls and price rises that were subsequently required to be reversed.

RIVN’s products remain strong, even with a relatively limited product line. Moreover, it is expected to begin production in 2026 in Georgia on a lower-cost consumer EV called the R2. Given the steady increase in production, it is not anticipated that RIVN will reach profitability imminently.

The company's quarterly cash expenditure is estimated to be approximately $1 billion. Given its significant distance from attaining mass production levels required for improved cost efficiency, RIVN may face additional challenges in the foreseeable future.

Bottom Line

RIVN's operation has seen decent stability in the past year, although its share value contends with apprehensive investors troubled by unmet production benchmarks, expanding debts, and considerable financial losses. So far this year, RIVN shares have appreciated by roughly 28%. Yet, they currently trade 70% lower than its IPO price of $78.

The earlier-than-expected bond issuance in October took shareholders by surprise, triggering a sell-off that significantly undercut the stock's value. However, market analysts foresee possible improvements as the company extricates itself from supply chain predicaments that have plagued recent quarters.

The automaker's upbeat forecast serves as a glimmer of hope for a sector grappling with the adverse effects of inflated costs, sagging consumer interest, and price reductions aimed at stirring demand. In a departure from the norm, RIVN has opted not to lower prices, choosing instead to manufacture its Enduro powertrains in-house, a decision aimed at decreasing supplier dependence and cost overheads.

Despite delivering vehicles for eight consecutive quarters, the company still posts negative gross margins. RIVN's immediate priority is achieving a positive gross margin, which will place it on the path to operating profit. This feat, however, cannot be accomplished until gross profits outperform rising operating expenditures, currently estimated at an average of about $1 billion per quarter.

Following this, RIVN needs to generate sufficient operational profit and cash flow to fund its CAPEX, consequently transitioning RIVN to cash flow positivity. Achieving this landmark will require a minimum of five years, given that sales of R1 and EDV models alone will not secure profitability or positive cash flow. The successful launch and profitable scaling of the R2 model by 2026 is integral to the realization of this goal.

Its primary challenge is attaining positive free cash flow to sustain growth independent of balance sheet reserves. Although the financial outlook has improved, there are enduring concerns over whether its $7.94 billion cash reserve, as of September 2023, would suffice, considering that RIVN postponed previously anticipated CAPEX this year. An initial CAPEX projection of $2 billion in 2023 has been revised to $1.1 billion.

RIVN can leverage capital markets for additional funding. While debt financing may not be the most attractive approach amid the prevailing high-interest-rate climate, interest rates could potentially decrease by the time RIVN finds a pressing need for such resources, likely not before 2026. Another plausible circumstance suggests that an increased valuation for RIVN could render equity financing a more appealing strategy to accrue funds instead of accumulating debt.

In either case, it's noteworthy to mention the company’s commendable efforts toward curbing its cash burn rate. Investors are advised to keep a vigilant eye on RIVN's financial activities in the coming year to monitor whether this trend sustains. An unforeseen increase in cash burn over a span of a few quarters would not necessarily amount to a significant detriment to the firm, given the time it has before the requirement to inject more capital arises.

Keeping these considerations in mind, investors should wait for a better entry point into the stock.


AT&T (T) Earnings Check: Is the Telecommunications Giant a Buy or Hold Before the Report?

Telecommunications behemoth AT&T Inc. (T) is set to unveil its third-quarter earnings before the market opens on October 19, 2023. For the fiscal third quarter (ending September 2023), analysts expect the company’s revenue to increase marginally year-over-year to $30.24 billion, while its EPS is expected to decline 8.6% year-over-year to $0.62.

The company foresees a third-quarter free cash flow between $4.5 billion and 5 billion, while for the full year, a minimum of $16 billion in free cash is expected to be generated.

With a market cap surpassing $102 billion, T retains its prominence within the telecom industry as the third-largest U.S. wireless carrier, boasting 70 million postpaid and 18 million prepaid phone customers.

During the fiscal second quarter of 2023, the company generated operating revenues of $29.92 billion. T has established a significant presence in Mexico with around 22 million subscribers. However, it accounts for only 3.2% of the total revenues.

The post-pandemic landscape has seen U.S. telecom market growth decelerate significantly, with competitors attempting to lure customers through cheaper plans in this fiercely competitive market. However, the second quarter showed signs of improvement from the first quarter, attributed to the success of a cost-cutting initiative that stripped over $1 billion from operating expenses through strategies such as office location reductions.

With its $6 billion cost reduction target achieved earlier than anticipated, T is now setting sights on slashing another $2 billion over the next three years.

In the second quarter, T saw an additional 326,000 postpaid phone subscribers, about 60% less than the prior-year quarter. This downturn can be linked to increased competition within the industry, slow smartphone sales, and ongoing headwinds concerning consumer spending. The situation may further deteriorate with Amazon’s recent venture into the wireless market through a partnership with Dish Network.

The company’s mobility segment, providing extensive nationwide wireless service and equipment, continues to amass subscribers, though at a somewhat muted pace. Mobility subscriber count grew 12.6% year-over-year to 229 million subscribers.

While T's fiber business growth may not be rapid enough to counterbalance the ongoing downturn of its wireline unit, the segment is showcasing remarkable performance. The second quarter saw an increase of 251,000 fiber subscribers, marking the segment's 14th consecutive quarter of gaining at least 200,000 new customers.

However, T is confronting questions concerning the safety and environmental disadvantages of its lead-sheathed copper cables. Replacement of these outdated cables could necessitate multi-billion-dollar expenses, diminishing its FCF and compelling reduction in dividends.

Moreover, as Pay-TV subscriptions consistently diminish, T is assessing alternatives for DirecTV, which has been losing subscribers due to competition with streaming networks. The second quarter witnessed a loss of approximately 400,000 customers, reducing its overall customer base to 12.4 million. The dwindling subscriber numbers have triggered a decrease in the cash distribution T derives from DirecTV.

T's debt escalated significantly over recent years, owing to acquisitions of DirecTV, TimeWarner, and advanced wireless services (AWS-3) spectrum licenses financed by borrowed funds. As of June 30, 2023, the telecom titan's total debt was $143.28 billion, compared to $135.89 billion on December 31, 2022.

With the escalated inflation, alarms are being raised about potential interest rate hikes leading to extravagant borrowing costs for T. A rise in borrowing costs could affect T’s profitability and cash flow. Additionally, swelling inflation undermines consumers' purchasing capacity – significant given T's heavy reliance on consumer subscriptions and spending. A slowdown in consumer spending could adversely impact T’s total revenue and stock price.

Nevertheless, T aims to slash its total costs by $2 billion over the forthcoming three years to reduce its net debt-to-adjusted EBITDA ratio to 3x by 2023 and further to 2.5x by 2025's end.

Despite hiccups like poorly-timed acquisitions, slow growth, cost-cutting, and complications with its lead-sheathed cables, T exhibits prospects for development underpinned by its robust profitability. The company’s trailing-12-month cash from operations of $37.04 billion is significantly higher than the industry average of $254.23 million. Its trailing-12-month EBIT margin of 23.02% is higher than the industry average of 8.32%.

T’s notable attribute is its unwavering dedication to shareholder's interests. The company pays a $1.11 per share dividend annually, translating to a 7.73% yield on the current share price. Its four-year dividend yield is 7.09%.

However, it is critical to acknowledge that T's share prices have tumbled 22% year-to-date, and the stock currently trades below its 100-day and 200-day moving averages of $14.96 and $16.83, respectively, indicating a downtrend.

Nevertheless, Wall Street projects a potential uptick in the stock value, estimating it to reach $20.11 in the next 12 months, indicating a potential upside of 40%. The price target ranges from a low of $17 to a high of $25.

Several institutions have recently modified their T stock holdings. Institutions hold roughly 54.7% of T shares. Of the 2,549 institutional holders, 1,087 have increased their positions in the stock. Moreover, 165 institutions have taken new positions (37,409,084 shares).

Bottom Line

T is currently contending with a significant debt burden. Despite assertive strategies to cut costs and lure subscribers through cost-effective packages, the company is shrouded in substantial uncertainty.

Adopting an entirely pessimistic perspective on its stocks may not be wise, considering its attractive valuation, robust profitability, and consistent dividend payments. Amid the market instability, T emerges as an appealing defensive investment.

The firm proactively addresses fiscal issues, including high liabilities and debt, through strategic debt reduction. Although the market may not skew in favor of T soon, investors could wait for a better entry point in the stock.