Rivian (NASDAQ:RIVN) is one of the top electric vehicle (EV) stocks on investors’ radar today. After surging more than 50% in pre-market trading, RIVN stock has since lost some steam. However, it’s important to note that this stock is still trading some 20% higher this afternoon on some very important news.
Leading global automaker Volkswagen (OTCMKTS:VWAGY) just announced its intention to invest up to $5 billion in Rivian over time, with an initial $1 billion investment set to take place in short order. Given Rivian’s current capital needs, this move is certainly one that investors like to see.
Rivian has seen significant outside funding in the past, with Amazon (NASDAQ:AMZN) a major shareholder and buyer of Rivian delivery vans. However, this new investment clearly suggests that the industry is moving toward Rivian as a central piece of their electrification plans.
Let’s dive into what to make of this news — and why a CFRA analyst raised their price target on RIVN stock today.
RIVN Stock Surges on Key Investment
Garrett Nelson of CFRA raised his price target on RIVN stock to $8 per share from $5 today, despite maintaining a “sell” rating. This increase appears to be directly tied to the recent Volkswagen investment, which itself is tied to a joint venture between the two companies to develop EV architecture and software.
Nelson’s view appears to be that this collaboration between the two companies indicates the value that Rivian’s core infrastructure holds in the marketplace. At the same time, the analyst believes that the firm’s cash burn is high while its operational efficiency needs work. The ability for Rivian to produce meaningful cash flow growth remains uncertain and, at a current valuation of roughly $14 billion, investors aren’t getting much in the way of a forward cash flow yield — at least given where metrics sit right now.
I think Rivian is a difficult company to assess at current levels. There are reasons for investors to be bullish on the company’s overall model and brand. However, it’s unclear whether short sellers are correct in piling into this trade — and whether today’s reaction to the Volkswagen news is more representative of a short squeeze than anything else.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
