According to Zhitong Finance, Rivian (RIVN.US) stock surged on Monday because the investment bank Benchmark rated the stock as "buy" with a target price of 18 dollars. Rivian's stock closed up 11.2%, reaching its highest level since early August. Benchmark believes that Rivian is at the beginning of a "huge market opportunity," with the adoption rate of electric vehicles expected to grow by nearly 27% annually by 2035. Analyst Mickey Legg noted that Rivian is ready to ride this wave due to several factors.

Rivian has not had a good year; the production at its factory has encountered problems, and it is still losing money this year. However, major partnerships, such as the new joint venture with Volkswagen and the federal loans temporarily awarded for the assembly plant to be built in Georgia, have boosted the company's cash reserves and stock price.

Amazon is an early investor in Rivian and has signed a delivery agreement for 0.1 million commercial delivery vans. Legg stated that this deal demonstrates Rivian's ability to manufacture electric vehicles domestically and utilize internal software in its autos. Earlier this year, Rivian reached an agreement with Volkswagen, where Volkswagen will pay Rivian nearly 5.8 billion dollars to use its technology in the upcoming electric vehicles.

Legg stated, "We believe that through collaboration with Amazon and Volkswagen, Rivian has the capability to manufacture electric vehicles domestically using independently designed software. Volkswagen's industry relationships and expertise will assist Rivian in negotiating with suppliers and providing engineering synergies."

This leads to cost issues, which is another key point for Legg. To quickly achieve "positive vehicle economics," the company has reduced material costs (the cost of goods to manufacture trucks) and streamlined vehicle systems, resulting in a 41% decline in cash usage for the second quarter. Legg believes that this situation will improve as Rivian continues to lower material costs and extends its fixed costs from the second-generation R1 model to the new R2 model to be launched in 2026.

With decreasing costs, in addition to validating Rivian's product expertise, Legg is also bullish about Rivian's collaboration with Volkswagen. The cash flow from this deal gives the company time to expand its manufacturing and invest in its capabilities. Legg stated that the cash provided by Volkswagen "is, in our estimation, sufficient to fund business and growth plans."

Rivian's strong balance sheet is another favorable factor for Legg. The company has over 6 billion dollars on its balance sheet, and Legg believes Rivian has sufficient capital to achieve cash flow breakeven in its operation.

Legg pointed out that this does not include the 6.6 billion dollars in new conditional federal funds Rivian received last month for building its assembly plant in Georgia, which provides Rivian with more low-cost capital.

Considering Rivian's cash situation, innovative technology, and continuously improving economies of scale, Legg believes that Rivian's target price is reasonable and could even be higher. Legg wrote, 'We believe Rivian, with its differentiated technology, unique products, strong management, and brand reputation, deserves a higher valuation.'