What happened
Rivian Automotive (RIVN 3.48%) shares sank more than 12% in early trading Tuesday to hit an all-time low. The drop came after the company announced in a Securities and Exchange Commission filing that it was raising additional capital. The stock was down by 11.5% as of 10:40 a.m. ET.
So what
Rivian shares had recovered somewhat from a drop last week after the company reported its fourth-quarter and full-year 2022 earnings. But today's news has investors bailing from the electric vehicle (EV) start-up once again. That's because the $1.3 billion convertible bond offering will dilute existing shareholders if those bonds are eventually converted to common stock.
Now what
Last week, Rivian reported a net loss of $1.7 billion in the fourth quarter and $6.8 billion for the full year last year. It still held $12.1 billion in cash and equivalents as of December 31, 2022, but that was down from $17 billion on March 31. The company has previously said it only had enough capital to fund its operations through 2025.
That's why it shouldn't come as much of a surprise that Rivian has plans to raise more funds as it grows its production capacity in its capital-intensive business. The terms of the bond issuance weren't disclosed yet, but a likely result will be dilution to existing shareholders when the bonds are converted to stock. An additional $200 million in notes will also likely be offered to initial purchasers for a total of $1.5 billion in value. That's more than 10% of Rivian's recent market cap, helping to explain investor reaction today.
Image source: Rivian Automotive.
The company plans to put the fresh capital toward the development of its future R2 vehicle platform, according to a Reuters report. A company spokesperson also said the move offered "optimal cost of capital versus selling equity at today's levels."
Rivian still has the long-term potential to be very successful as the EV market grows. While it remains a highly risky stock even at its lows, today's drop could offer some investors a good opportunity to add shares while the company shores up its capital position.
