Rivian stock declined 7.6% in premarket trading, while S&P 500 and Nasdaq Composite futures dropped 0.2% and 0.1%, respectively. The disappointing Rivian stock fall comes days after the company said it delivered more units than expected in the third quarter. Rivian had more than $10 billion in cash entering the third quarter. The amount it burned through shocked investors.
Rivian shares popularity
Rivian Automotive (RIVN -22.88%) has been a Wall Street darling among stocks in the electric vehicle (EV) sector recently. Going into today’s trading session, Rivian shares were up an astounding 54% over the last six months.
But the Rivian stock is getting slammed today. Rivian stock price today as of 10:25 a.m. ET, had tumbled by 17.2%.
What made Rivian stock fall?
The crash came after the company provided preliminary financial results for the third quarter. Investors reading between the lines were disappointed, and that disappointment was reinforced by another announcement that Rivian was planning to sell $1.5 billion in convertible debt.
It’s not uncommon for stocks to drop after convertible bond sales are announced. After all, it potentially adds common shares that would dilute existing shareholders. In this case investors are likely more worried about how it relates to what’s going on in the business. Rivian reported $10.2 billion in cash and equivalents on its balance sheet as of June 30. But in the new filing, the company showed that it burned through more than $1 billion in cash in the third quarter, which ended with $9.1 billion on the balance sheet.
Strategies by Rivian to revive
Rivian had previously announced its vehicle production and delivery data for the third quarter. So investors already had a pretty good idea of how much revenue was generated in the quarterly period. The range it provided in the filing did indeed fall in line with analyst expectations.
But the cash burn and subsequent bond sale has certainly increased investor anxiety today that has seen Rivian stock to fall. Many had likely believed that Rivian had a sufficient cash pile to reach positive cash flow from its operations. That seems in doubt now, and the rate of cash burn surprised investors. Look for more details when the company reports its full third-quarter results and answers analyst questions on Nov. 7.
Rivian an expensive buy
Rivian’s vehicles are tempting for American buyers of electric-powered pickup trucks that handle like sports cars. But they sell at about $80,000 on average, and developing them is expensive. It isn’t that bad, explains Benchmark analyst Mike Ward. Ford is spending billions on R&D. Ward estimates that the EVs are profitable at the gross profit margin line of the profit and loss statement. Ford doesn’t report gross profits by division.
