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Rivian to ‘benefit’ from predecessors, analyst says

Truist Securities Equity Research Analyst Jordan Levy joins Yahoo Finance Live to discuss the outlook for Rivian stock.

Video Transcript

[AUDIO LOGO]

AKIKO FUJITA: And Rivian is on a roll today. The electric vehicle maker now has another bull under the hood. Truist initiating coverage of the company with a buy rating and a $65 price target. The stock is trading right now at $34, by the way. Truist citing its vertical integration, unique technology, and partnership with Amazon. Joining us now, Jordan Levi, who is Truist's Securities Analyst in Sustainable Equity Research. Jordan, you got a lot of people talking with that $65 price target. Walk me through your thesis.

JORDAN LEVY: Yeah, absolutely. Thanks for having me, Akiko. And I think what's important to recognize is before getting into the diversified model that they have, and the integrated tech, and all of that makes Rivian a really interesting company. But I think it's important to recognize is that while this seems-- on a surface level-- to be a startup to a lot of consumers that are just seeing these cars start to get out, that RJ and his team have been building this business out for over a decade now.

And they have the benefit of all their predecessors that have come before them. And so I think that's an important underlying base of our thesis. But going back to the $65 price target, when you look at the stock and where it is now-- down about 70% or so from its IPO price-- and of course, the general market that we're in, really all we're saying is we recognize that this company has taken a different approach. They benefit from their predecessors and seeing how they've scaled up. They understand that technology is underlying all things mobility, going forward.

And so we believe that as they start to demonstrate that they can hit these production targets, and that they're executing on their plan, the stock will trend back toward where it's intrinsically valued. And that's how we look at it.

AKIKO FUJITA: So one of the biggest things you highlight, Jordan, in your note is this ability for Rivian to control the stack, if you will. You talk about their control over the software, their electronics landscape. We've also heard so many companies talk about the supply chain and the challenges they've seen there that has trickled down into the manufacturing side of things. Why does Rivian have an upper edge on that?

JORDAN LEVY: Yeah, absolutely. I think that we saw early in Rivian's ramp that they were hurt by those challenges that they were facing. And what the company has shown as they scale up-- and we think they're actually in good position going into the second half of the year-- is that as they can show more comfort to suppliers-- that they are getting to these numbers that they've put out there-- they'll get more of that Tier One benefit, which is both a price benefit and a volume benefit. And so we think that as that sector starts to adjust and is able to meet these demands, because Rivian is still smaller in terms of global OEMs but is achieving that Tier One status, we think they'll benefit from that.

AKIKO FUJITA: This is a company that has bet big on the commercial side. Obviously, they've got that huge partnership in place with Amazon as well. How much of that factors in to your price target, when you think about the upside for Rivian? EVs we tend to lump in as a whole, but Rivian's got a bit of a different proposition because of their focus on the commercial side.

JORDAN LEVY: We think it's imperative to the business model in terms of the fleet OS system that they've been able to establish, the partnership with Amazon and how they've integrated Amazon systems into their cars-- into their vans, rather-- we think it's hugely differentiated. We actually surveyed commercial fleet owners as part of our launch-- 160 commercial fleet owners-- and we found that not only did they find fleet management systems hugely important, but they were underserved in the amount of fleet management systems out there. So we think there's a real niche to fill in that market once they get outside of Amazon, which is a great enough customer of itself.

AKIKO FUJITA: Finally, Jordan, when you look at from the top-down view in the EV space, we have seen these things go in cycles-- when gas prices go high, interest in EVs accelerate. We're starting to see a tick up just a little, but it's still well off the records that we saw over the summer. Where do you see adoption going from here? How much of that is going to continue to be tied to gas prices, those levels as opposed to really the technology and then just the availability of these cars out there?

JORDAN LEVY: Yeah, certainly I think we've passed a point where you need exceedingly high gas prices to spur EV adoption. And I think as we go forward from the announcement from the global OEMs down to Rivian and its competitors, the availability of EVs, and-- over time-- the declining price curve will play a huge role. And so I think if you go back three, four, five years, certainly that would be-- higher gas prices could be the make or break there. I think we've passed that point.

But I definitely think that on the margin, it accelerates it. Where I think it really will accelerate adoption toward electrification is in the commercial space, where the total cost of ownership is hugely important to commercial fleet owners. And higher gas prices, I think, can make or break the total cost of ownership profile of a vehicle.

AKIKO FUJITA: Jordan Levy, Truist Securities Analyst in Sustainability Equity Research. Good to have you on today.