Rivian Automobile (NASDAQ: RIVN) shares soared after it announced a surprise new deal with a global auto giant Volkswagen earlier this week. As investors digest more details of the multifaceted arrangement, some are quick to capitalize on the stock’s rise.
Today, Rivian shares were down 7.7% as of 2:45 PM ET. At that point, the stock was still up nearly 30% this week. So what should investors make of the volatility in Rivian stock?
Rivian’s Investor Day explains it all
To recap the partnership news: Volkswagen will invest up to $5 billion in Rivian to gain a stake in its software and electric vehicle (EV) technologies. That includes an upfront investment of $1 billion in the form of a convertible note. A $2 billion investment in common stock and another $2 billion to set up an EV technology joint venture (JV) will follow, subject to certain conditions and regulatory approvals.
What might make investors profit today is the reality that Volkswagen’s investment is not the guaranteed lifeline that some investors initially assumed. Firstly, it will be dilutive to existing shareholders. The note’s conversion price will be less than $11 per share. That’s more than 50% lower than where Rivian was trading in 2024. Volkswagen’s investment will also only help Rivian bring its next-generation R2 models to market in 2026 if it continues to rein in spending.
Management unveiled its cost-saving plans during its Investor Day presentation Thursday night. While the company plans to cut material costs by 20% for the remainder of this year, the bulk of the savings is expected to occur next year when production of the R2 models begins. Capital expenditures will also be reduced by a total of $2.5 billion through 2025.
The extended timeline and upcoming dilution have some investors taking profits today, but for long-term investors, this week has been an overall bullish week for Rivian.
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Howard Smith has positions in Rivian Automotive. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
Why Rivian Stock ended the week with a decline was originally published by The Motley Fool
