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Rivian Automotive Inc. is “heading off-road” amid weaker demand for EVs and a strategy that is hard on profitability and cash flow, analysts at UBS said in a note Friday.

“We had been optimistic on [Rivian’s] product and brand ultimately winning out,” the analysts said. Now there’s a “more tepid” U.S. demand for EVs and Rivian’s vehicles, risk to Rivian’s 2024 guidance and a likely substantial capital raise in the horizon, they said.

The analysts, led by Joseph Spak, cut their rating on Rivian’s stock
RIVN,
-10.09%
to sell, from buy, a relatively rare two-rung downgrade. They also slashed their price target on the shares to $8, from $24, implying a downside of around 22% from Friday’s prices and among the lowest targets recorded by FactSet.

The average price target on Rivian’s shares is $19.28, according to FactSet. Of the 28 analysts covering Rivian’s stock, 16 rate it a buy, eight rate it a hold, and the remaining four rate it a sell.

Rivian on Wednesday spooked investors by issuing a weaker-than-expected guidance, saying production would be essentially flat for the year. Its quarterly loss was larger than expected and revenue came in line with estimates.

On the brighter side, the EV maker said it would unveil its next-generation, cheaper EV in early March. The compact electric SUV is expected to cost about $45,000.

Tesla Inc.
TSLA,
-1.46%
is also on a race to offer a cheaper EV, costing around $30,000, and General Motors Co.
GM,
+1.30%
is bringing back the Chevy Bolt in the next few years, with the discontinued model priced at around $30,000.

Don’t miss: Tesla ‘Model 2’: 4 things to know about the next-gen EV

Rivian’s existing luxury EVs — a pickup truck and a full-size SUV — are marketed as “adventure” off-road vehicles and start at about $70,000, limiting their demand against general concern about a demand slowdown for EVs.

Rivian’s EVs are “high priced” and there’s risk to their volume and pricing, which Rivian could cut to stimulate demand.

“Further out, [Rivian] growth is reliant on R2 … but we don’t believe production starts until late 2026, so meaningful financial impact isn’t until 2027 – a long time to wait for a product the stock hinges on,” the UBS analysts said.

Moreover, the EV maker’s “current strategy is onerous on cash,” they said. It makes sense to be vertically integrated, but “it’s costly and clashes with the dual realities of near-term slower EV demand and a vastly different capital market environment for EVs.”

“We wonder how much longer management can hold on to current strategy,” he said.

Where UBS could be wrong? There could be stronger EV demand, Rivian could come up with cost reductions “meaningfully greater” than what the market is factoring in, with less need for capital, and the company could pivot from its current strategy and even look for a partner to improve their capital efficiency, the analysts said.

Shares of Rivian have lost 44% in the past 12 months, contrasting with gains of around 27% for the S&P 500 index
SPX.

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