A 12% drop on Tuesday was the last thing investors of electric vehicle (EV) maker Rivian Automotive Inc (NASDAQ: RIVN) were expecting. Despite having already sank more than 50% since last quarter, they would have been hoping the stock was set to start recovering rather than falling to fresh lows. After all, MarketBeat has written extensively about the recovery rallies across beaten down tech stocks.
But Tuesday’s drop has paid for that, for now at least. The catalyst for the fresh all time low was the news on Thursday evening that the company had announced plans to raise a fresh $1.3 billion. Management has been spooked by the drop in demand for EVs in recent weeks, and they’re not alone in this. But investors have worried today that Rivian felt they needed to raise even more right now, having closed off 2022 with more than $12 billion in cash. It feels panicky though, and begs the question about just how grim management’s outlook has become.
They’re proposing a private offering of green convertible senior notes that will be due in 2029, valued at $1.3 billion to raise the money. Management also intends to provide initial buyers of the notes with an option to purchase additional notes up to $200 million.
Their plan for the proceeds of the offering is to allocate them to the financing, refinancing, and direct investments in “current and future eligible green projects”. It’s interesting to note that they’ll avoid investing the proceeds in operations that result in increased greenhouse gas emissions. It’s a bit of a weird move, though, as management must have known the news would send shares down to fresh lows at a time when an upside surprise was needed more than ever. Rivian shares are now down a full 90% from the all-time high they tagged in 2021.
So what’s the opportunity?
The Upside From Here
Well, Rivian now boasts an even bigger cash pile, which as CNBC pointed out dwarfs many of their EV startup competitors. And it’s only last week that it emerged that management still believes they can exceed their 2023 production target of 60,000 vehicles. This came after they warned shareholders the number was likely to be closer to 50,000.
And even if the more conservative number is hit, as CFO Claire McDonough pointed out, it would still “represent a doubling of year-over-year production while also accounting for the risks and uncertainties associated with the supply chain and integration of new technologies.”
Notwithstanding what the stock has done, this is a decent position in all things equal. For those on the sidelines who have avoided the drawdown, the risk/reward profile has just improved markedly. Their revenue for last quarter was up by a factor of 12 on the same quarter in 2021, while their EPS across the same time period improved from -$4.83 to -$1.86, so it’s very definitely moving in the right direction.
And last week saw the reiteration of a Buy rating on Rivian stock from the team at Needham. Analyst Chris Pierce and his team noted that while the company’s production guidance for the year ahead is well below consensus delivery estimates, they were impressed by management’s confidence in achieving positive gross margins by 2024. In a note, to clients, Pierce wrote, "while the steepness of the implied ramp is uncomfortable, we view production issues as solvable, with RIVN's move to their internally designed Enduro drive unit as a notable tailwind.”
Their $26 price target will go a long way to perking up the bulls’ ears, too, as today’s drop implies an upside of more than 70%. Let’s see where the bears run out of steam in the coming sessions because once it looks like a low has been put in following this week’s news, it’s very easy to see the upside from there.