Why Rivian Stock Ended the Week With a Drop

Rivian has an EV technology stack that Volkswagen thinks has real value.

Rivian Automotive (RIVN -7.26%) stock shot higher after it announced a surprising new deal with global auto giant Volkswagen earlier this week. As investors digest more details of the multifaceted arrangement, some are taking quick gains from the stock’s jump.

Today, Rivian shares were lower by 7.7% as of 2:45 p.m. ET. At that time, the stock was still up nearly 30% for the week. So what are investors to make of the volatility in Rivian shares?

Rivian’s Investor Day lays it all out

To recap the partnership news, Volkswagen will be investing up to $5 billion in Rivian to gain a share of its software and electric vehicle (EV) technologies. That includes a $1 billion investment up front in the form of a convertible note. A $2 billion common stock investment and another $2 billion to set up an EV technology joint venture (JV) will follow, subject to certain conditions and regulatory approvals.

What might have investors taking profits today is the reality that Volkswagen’s investment isn’t the guaranteed lifeline that some investors may have initially assumed. For one thing, it will be dilutive to existing shareholders. The conversion price of the note will be below $11 per share. That’s more than 50% below where Rivian stock was trading heading into 2024. Volkswagen’s investment will also only help get Rivian to the point where it’s shipping its next-generation R2 models in 2026 if it continues to rein in spending.

Management spelled out its cost-cutting plans in its Investor Day presentation Thursday evening. While it plans 20% in material cost reductions through the balance of this year, the bulk of savings is expected to be next year as it begins production on the R2 models. Capital expenditure reductions totaling $2.5 billion will also flow through 2025.

The extended timeline and coming dilution has some investors taking profits today. For long-term investors, though, this week was an overall bullish one for Rivian.

Howard Smith has positions in Rivian Automotive. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.

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