Rivian Shares Sink After Morgan Stanley Warns R2 Launch Will Hit a Weak EV Market

Rivian stock plunged after Morgan Stanley issued a harsh downgrade on Monday, cutting the rating to Underweight and assigning a $12 price target, implying 33% downside. The bank warned that Rivian’s upcoming R2 SUV launch arrives at a moment of weakening EV demand, expiring tax incentives, and mounting financial losses. The bearish call reflects deeper concerns about Rivian’s ability to scale profitably in a slowing market.

Analysts say the R2’s 2026 debut collides with collapsing incentives and softening demand

Morgan Stanley analyst Andrew Percoco argued that Rivian’s lower-priced R2, once framed as the brand’s breakout moment, will instead enter one of the most challenging demand environments in years. The expiration of the $7,500 federal EV tax credit has sharply reduced buyer interest, intensifying what analysts describe as an “EV hangover” following last year’s rush of last-minute incentive-driven sales.

Market data shows sharply deteriorating momentum: battery-electric vehicles were forecast to capture only 5.3% market share in November, with October sales down more than 57% from September’s peak. This shrinking pool of cost-conscious buyers heightens the risk that Rivian’s R2 launch could underperform expectations, despite its planned $45,000 starting price. Percoco warned that Rivian’s premium R1T and R1S models cannot support long-term scale alone, making the R2 essential but ill-timed, according to Red94.net.

Forecasted losses, cash burn, and a tougher competitive landscape deepen investor concerns

Morgan Stanley projects a $2.9 billion adjusted EBIT loss for Rivian in 2026 and free cash flow burn of $4.2 billion, underscoring the capital demands of the R2 rollout. With rising interest rates, elevated financing costs, and a cooling EV market, the firm believes Rivian will need significant reserves, or additional capital, to stabilize operations.

The downgrade came alongside broader calls from Morgan Stanley, including cuts to Tesla and Lucid and an upgrade for General Motors, signaling a shift toward legacy automakers with hybrid-heavy strategies. The bank expects fewer than 16 million U.S. vehicle sales next year, framing the industry as entering a normalization phase after years of elevated demand. For Rivian investors, the central question becomes whether the company can spark meaningful R2 demand despite a market moving in the opposite direction.

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