Rivian Automotive Inc. reminded investors just how costly it is to make its electric vehicles, and how much money they will need to continue making them.
On Thursday, Rivian shares
RIVN,
plunged nearly 23% after the company surprised investors Wednesday evening with news that it would be raising $1.5 billion in convertible debt, in a private offering. The convertibles, due in 2030, will be offered to private institutions and holders will have the option to convert them into cash and stock, under certain circumstances and time periods. Unlike traditional bonds, convertibles are seen as dilutive to shares.
Late Thursday, Rivian priced the notes at about $23.29 per share of common stock, a premium of around 27.5% to its closing price of $18.27.
While Rivian had mentioned an eventual debt offering during its earnings call in August, the timing was much sooner than expected, causing investors to get more nervous about how fast it is burning through cash. It had $10.2 billion in cash and equivalents in the second quarter and the company ended the third quarter with about $9.1 billion. In addition, it gave a sales outlook Wednesday that was pretty much on target with Wall Street’s current estimates.
“They continue to burn through $1 billion in cash a quarter,” said Garrett Nelson, a CFRA analyst, who has a sell rating on Rivian. “Given the rate they are burning, it was clear that they need cash sooner than investors thought. The expectation was that they would do a capital raise next year. This blindsided investors.”
Rivian is currently building a manufacturing plant outside of Atlanta, to the tune of $5 billion, which is much larger than its current plant in Illinois.
In August, the electric-vehicle maker told analysts that it believed it could fund its operations through 2025, and with the addition of its convertible offering and an extension of its $1.5 billion asset-based loan, it has strengthened its balance sheet as it approaches the launch of its next-generation truck family, the R2, in 2026.
But the automotive industry is extremely competitive and cash-hungry. Nelson pointed out that prior to the emergence of Tesla Inc.
TSLA,
the last new entry in the U.S. market to survive was Chrysler, now owned by Stellantis
STLA,
in the 1920s.
“There have been so many automakers that have not been able to survive,” he said. “It is a competitive industry and a prohibitively high capital cost.”
Others were more sanguine about the unexpected timing of the convertible offering. Gary Black, managing partner of the Future Fund LLC, posted on social media that even though Rivian was expected to do an equity offering in 2024, it was being penalized for a capital raise a year early.
But no matter how Rivian is going about raising capital, the sooner-than-expected offering is likely not a good sign, for a company with a high cash-burn rate. And Wall Street does not like surprises.