Piper Sandler thinks electric vehicle maker Rivian needs to address funding headwinds to compete with Tesla. The firm downgraded Rivian to neutral from overweight Thursday. Piper also slashed its price target to $15 per share from $63 per share. The new target points to marginal upside from Thursday’s close. “We still like Rivian’s strategy, which uses vertical integration to capture lucrative after-sales revenue (e.g. software, service, and charging),” analyst Alexander Potter wrote. “The problem is, this strategy is costly. In order for RIVN to justify its cost structure, the company must spread its investment over millions of units (just like Tesla does), and in order to finance such aggressive expansion, RIVN will need capital.” Potter added that, for Rivian to improve its cash burn, the company must address high costs associated with controlling every aspect of vehicle production from start to finish — as rival Tesla does. He says the company has the brand to compete with the higher-end segment of the industry, but will need to cut costs and outsource some production like batteries and software. The firm’s downgrade largely stems from Piper Sandler evaluating Rivian at book value as opposed to a valuation based on discounted cash flow. Potter said his previous rating was based off of the company producing more than three million vehicles annually, while the company is currently making roughly 500,000 to 700,000 vehicles per year. “Given cash constraints and disobliging capital markets, we think most investors are currently unwilling to pay for RIVN’s long-term prospects,” Potter said. Rivian shares fell more than 3% following the downgrade. The stocks has struggled this year, losing 22%. Over the past 12 months, it’s down 64.6%. — CNBC’s Michael Bloom contributed to this report.