Rivian Automotive Inc. (NASDAQ:RIVN)
Rivian Automotive Inc. (NASDAQ:RIVN) hit a new 52-week low this week after announcing a $1.3 billion green convertible senior notes offering.
The market dropped on Thursday as investors braced for the publication of labor market data on Friday. In the near term, the employment data might cause Rivian Automotive to drop to new lows as investors speculate about a likely central bank reaction, which includes faster rate rises.
But these events have nothing to do with how Rivian Automotive works. Because yesterday saw a dramatic decline in risk assets like bank stocks and cryptocurrencies, now is a good time to load up on Rivian Automotive shares.
The Success of Rivian Automotive Is Unrelated to Market Sentiment
When the market is down, it might be a good time to buy shares in promising firms that are part of a growing industry and are trading at a discount. I believe Rivian stock has been unjustly punished over the last several days.
Due to the weakening market, Rivian Automotive’s stock price has dropped to a 52-week low of $14.21. Suppose Friday’s employment data comes in higher than predicted. In that case, the Relative Strength Index indicates that Rivian Automotive will likely become oversold. The stock market would suffer if the Fed started quickly hiking rates again in 2023 due to a positive jobs report.
Now, Rivian stock is at a pivotal juncture. Two efforts by Rivian Automotive to break out of a trading range in February met with failure at the 50-day moving average line, a bearish technical indicator. The stock price might thus drop to new lows in the near future. Even if the RSI shows that RIVN is not yet oversold, the stock might become oversold and provide an even greater investment opportunity than it does now.
The $1.3 Billion Senior Notes Offering by Rivian Automotive
In the last week, Rivian stock price fell due to two factors that have nothing to do with the company’s success and execution in the EV market.
To begin, Rivian announced its plans to raise $1.3 billion by issuing green convertible senior notes with a maturity date of March 15, 2029. Notes worth an extra $200 million may be sold if demand warrants.
These senior notes are redeemable on or after March 20, 2026. They will allow the corporation to make fresh investments in ‘green initiatives such as sustainable transportation and renewable energy.
Second, investors typically pressure sellers in reaction to capital offers because of the possible dilution from a convertible offering. Rivian Automotive’s share price dropped by 14.5 percent, but the market is overreacting to the offering.
More than $11 billion in cash was on hand for Rivian at the end of the fourth quarter, which is more than enough to reduce the manufacturing of the company’s R1 truck and R1 SUV until 2024.
High Levels of Expected Output in 2023
During the earnings call, Rivian Automotive said it expects to produce 50,000 electric cars in 2023, an increase of over 100% year over year.
In 2022, Rivian Automotive manufactured slightly more than 24,000 electric cars, exceeding the company’s annual goal of 25,000 vehicles by a small margin.
Rumor has it that Rivian Automotive’s internal goal-setting process has thrown forth a 62K production target for 2023, a 24% increase over the company’s previously declared plan.
A Significant Increase in Sales Is Expected in 2023 and 2024
There is an expected $8.64 billion in revenues for 2019, with sales growth of 149% in 2023 and 110% in 2024. The EV maker sold around 24,000 EVs in 2022 for a total revenue of $1.66 billion.
With the market’s optimistic sales projection of $8.64 billion, the value of the electric car manufacturer has increased to 1.45 times sales. (predicted 2024 sales figures). The current sales multiple seems like a steal, given that Rivian Automotive was once valued at more than 10x sales.
For an electric vehicle (EV) manufacturer that expects to more than quadruple production this year (plus a projected 24% upside based on the internal projection), Rivian Automotive’s sales multiple of 1.45x is a deal.
Reasons Why Rivian Automotive’s Price May Fall
The success of Rivian Automotive and the demand for electric vehicles may be hindered by supply chain issues and other economic factors (such as inflation) in 2023.
A potential financial catastrophe might be triggered by the shutdown of Silicon Valley Bank. Lastly, investors’ sensitivity to risk might keep EV stocks from gaining traction if the financial situation worsens.
Conclusion
The recent events of the $1.3 billion green convertible senior note issuance and the market selloff in anticipation of Friday’s employment data have contributed to the decrease in Rivian Automotive shares and the creation of new 52-week lows for the company’s share price.
Investors are overreacting in both cases since they have nothing to do with Rivian Automotive’s performance and strategy in the EV industry.
The 2023 production prediction is plausible (particularly the one internally shared). The EV firm is still expected to produce an outstanding sales ramp this year and next.
Even though the Rivian stock price is around 52-week lows, I think Rivian Automotive is a good bet. My purchase quantity increases in proportion to the amount by which the price falls.
Featured Image: Megapixl © Michaelvi
