Investing.com -- In a note to clients on Wednesday, Jefferies analysts downgraded Rivian (NASDAQ:RIVN) to Hold from Buy based on a weaker demand outlook despite improvements in cost control and software monetization.

The firm maintained its $16 price target on the stock.

“Q1’s better numbers got helped by new accounting of previously received funds,” Jefferies analysts said, referencing Rivian’s recognition of part of a $1.3 billion intellectual property licensing fee from Volkswagen (ETR:VOWG_p).

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While that accounting boost lifted results, Jefferies highlighted operational progress as well, noting that Rivian "delivered further improvement in unit vehicle costs to ~$73k, 11k below Q4 level... and ~$25k lower than Gen1 a year ago."

Despite the cost improvements, Jefferies flagged concerns around vehicle sales volume and free cash flow.

The firm cut its 2025 unit forecast by 12% to 43,000, within Rivian’s guidance range of 40,000 to 46,000. As a result, free cash flow estimates worsened by $300 million to a projected negative $2.8 billion.

“We like Rivian’s brand equity story and software achievements but, with a downbeat demand outlook this year, we are left waiting for updates on R2 progress and hoping for 3rd party opportunities,” the analysts wrote.

Jefferies now assumes a 2025 gross margin of 9%, factoring in a core auto margin of negative 11%, ZEV credits at 6%, and software margins of 35%.

Although higher software revenue and tax credits helped offset weak unit sales, the firm still sees challenges ahead.

“Our estimates still model Rivian funded through the launch of R2 in H1 2026,” Jefferies noted, but added that additional equity could be needed beyond that point.

With shares trading at 2.2 times 2025 revenue estimates, Jefferies said valuation now reflects a balanced risk-reward, prompting the downgrade.

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