Why Is Wall Street So Bearish on Rivian? There's 1 Key Reason.

Key Points

• EV stocks are facing intense regulatory changes.

• Several key government subsidies are set to expire.

• Rivian's new models may experience rocky launches.

• 10 stocks we like better than Rivian Automotive ›

The average price target from Wall Street analysts for Rivian Automotive (NASDAQ: RIVN) stock is just $14.72. That implies just 5% in potential upside over the next 12 months. One analyst even downgraded the stock to a "sell," predicting 50% in potential downside.

Why is Wall Street so bearish? There's one obvious cause.

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Expect EV stocks to feel the pain

It's not a good time to be an electric car stock. The U.S. government is preparing to eliminate several key subsidies. The electric vehicle (EV) buyer tax credit -- which can effectively reduce the cost of buying an EV by as much as $7,500 -- is set to expire in September. Federal automotive regulatory credits, which have provided the industry with hundreds of millions of extra profit, will also cease to be of any value this year since penalties for non-compliance will be eliminated.

Rivian's new mass market vehicles -- the R2, R3, and R3X -- were all expected to qualify for federal tax credits. The company also earned roughly $300 million in the last quarter of 2024 alone from selling automotive regulatory credits. While much of that income stream will remain from state sources, federal sources will likely be non-existent in 2026. Both of these factors will cause direct and immediate pain for Rivian, but also for competitors like Tesla and Lucid Group. Investors in any of these companies should be paying close attention.

Image source: Getty Images.

When analysts at Guggenheim downgraded Rivian stock in July, they cited "reduced confidence in demand and the impact of weaker electric vehicle (EV) incentives." This comes right as Rivian attempts to market its new models, all of which are expected to debut under $50,000. Sales should still spike due to these product introductions. But expect the sales launch to be weaker than previously anticipated.

Long term, Rivian shares remain promising. However, the path to renewed growth just got a bit longer.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.