Rivian Stock Hits All-Time Low After Announcement Of Cash Raise

Key Takeaways

• Rivian stock was down 14.54% on the news that it would be issues convertible notes to raise an additional $1.3 billion in cash
• The details of the convertible notes, such as the rate and term, are yet to be announced
• The issue will be a green convertible note, which will make it a potentially attractive option for both retail and institutional investors who are seeking ESG based fixed income to add to their portfolios

It’s lucky that Rivian aren’t burning real cash, because at the rate they’re doing it, any positive environmental impact that they’re cars are having would be swiftly undone by that massive bonfire. And now they’re raising more.

Will Rivian even turn a consistent profit? It’s impossible to know for sure, but if you use Q.ai’s Emerging Tech Kit to invest, you can let AI steer your portfolio towards cutting edge tech companies that will.

Whether Rivian ends up on that list remains to be seen, but with AI on your side you can be sure that stocks like it are being reviewed and considered for your portfolio, automatically, every single week.

Rivian’s stock price sank 14.54% to close at $14.64 on Wednesday, an all-time low for the electric vehicle manufacturer. The fall came off the back of the announcement that Rivian would be raising an additional $1.3 billion in cash via a green convertible note.

It’s been a rough ride for investors who bought in after the Rivian IPO, with the stock price basically only going in one direction since the November 9th 2021 launch. Overall, the stock is down over 85% since that date.

As far as investing goes, it’s not been a winner. But will this latest influx of cash be enough to turn the much-hyped Tesla competitor into a portfolio surprise?

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What does the funds raise mean for investors?

One of the main reasons the stock went down so much is because these are convertible notes. It means that Rivian are raising funds that act like a bond, but rather than paying back the debtors from future cash flow, the debt is instead converted to stock at a later date.

From a business perspective, it makes a lot of sense. It means that the company can bolster their cash reserves without needing to worry about how they’re going to find the cash to pay it back later.

But while it’s a good deal for company operations, it’s not as great for existing shareholders and investors. Because when those notes convert into shares, it dilutes the existing investors. Say a company has 100 million shares on issue and each share is worth $1 and the market cap is therefore $100 million.

If that company issued convertible notes which resulted in 10 million new shares on offer, at some point those would be converted and the total shares on issue would be 110 million.

All else being equal, if the market cap was to stay at $100 million, it means each of those shares would now be worth $0.91 per share.

Of course the argument is that the extra cash should help the company grow their market cap, which will offset some or all of the impact of the dilution. But there’s no guarantee in that, and it’s more of a risk for a company like Rivian, which has yet to turn a profit.

In this case, investors may be scratching their heads a little at the cash raise, given that the company has around $12 billion cash in the bank already. The thing with Rivian is though, that analysts don’t expect them to be turning a profit until close to 2030.

So while they might not need cash now, they will surely need it before then.

The details of the terms of these convertible notes have not yet been released, with Rivian’s financial partners seeking feedback from the market before making the outlining the finer points of the issue.

What is a green convertible note?

Because Rivian is an electric vehicle maker, they qualify to issue what are known as green convertible notes. These are different to standard bonds and convertible notes, in that they must be used to fund environmentally friendly projects.

This matters because it opens up the pool of potential investors, and makes them an attractive proposition for ESG or sustainable investment funds and portfolio managers.

For these investment managers, the fixed income or bond markets are a bit more of a challenge to fill from an asset allocation perspective. Finding stock to buy in companies that fit a ‘green’ mandate is pretty straightforward these days, but finding bonds that meet that criteria has traditionally been more difficult.

This new issue will therefore cause many individual or professional investors with a strong ethical or sustainable mandate, to look closely at the offering.

The bullish case for Rivian

Despite hitting an all-time low and seeing consistent negative returns since IPO, there is still a bullish case for Rivian going forward. Firstly, the fact that it has fallen so far gives more room for upside based purely on a price anchoring basis.

Many investors who believe in the future of the company will likely consider the current valuation to be a relative bargain compared to the IPO price.

Despite difficulties and delays in production, Rivian trucks are now rolling off the production line, and the company has announced multiple new tech innovations in the pipeline. One example is a recent U.S. patent for battery cooling technology, which could rapidly increase the speed of a charge.

The demand for EV’s is only set to increase, and they have also recently hinted at an expansion into micro mobility with a new electric bike to be released.

The bearish case for Rivian

Right now Rivian is relying on new cash to keep their company going. This isn’t a new playbook, and even companies like Amazon spent many years running at a loss before generating consistent profits.

So while that’s not to say it’s not possible, it does put the company in a precarious position should they find themselves unable to raise more cash.

Investors have been patient with the company, but now that they are starting to deliver vehicles (24,337 rolled off the production line last year) they will likely want to see consistent deficit reduction and a move in the right direction towards profitability.

If that doesn’t come, Rivian could find themselves in a tough spot.

Invest in Clean Tech

Innovation in clean and green technology is important for all of us, and can be very financially lucrative for investors at the same time. Investing in this sector doesn’t come without risks.

But given the major push from all over the world to fund technology with a lower environmental impact, both governments and the private sector are on the same page with trying to make it work.

Investing in individual companies in this space is about as risky as it gets, and as we’ve seen from Rivian, it can end in disaster. More than ever, diversification is the name of the game, and the ability to spot and invest in trends in the space is vital.

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