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  • Rivian stock sells off 17% after company initiates $1.5 billion convertible bond sale.
  • If total debt offering eventually gets converted into common stock, existing shareholders may face 7.7% dilution or more.
  • Rivian produced more than 16,000 EVs in Q3, beating consensus on deliveries.
  • Rivian will offer an additional $225 million in bonds to initial purchasers.

Rivian (RIVN) stock has plunged 17% at the start of trading on Thursday as shareholders flee the company amid a convertible bond announcement. Closing Wednesday at $23.69, RIVN stock is now circling $19.65 on Thursday morning.

This price action has placed Rivian shareholders on a rollercoaster ride this week. The electric vehicle (EV) producer known for its pickup trucks surged 9.2% on Wednesday only to plunge another 9% in the post-market session when it announced the $1.5 billion convertible debt offering. 

These types of offerings allow the holder of the debt to convert it into equity and thus are treated as a dilution risk. Rivian stock is losing ground in parallel with the broader market. All three major indices have slid lower early Wednesday, with the NASDAQ Composite off 0.6%.

Rivian stock news: Extra $225 million could be added to convertible bond sale

Rivan’s share price predicament is rather predictable. The market usually treats companies that issue convertible bonds with disdain since they are akin to issuing new shares. Fellow Chinese EV automaker Nio (NIO) just raised $1 billion via convertible bonds two weeks ago, and the company’s shares crashed over 17% on the news.

Rivian is initially selling $1.5 billion worth of convertible bonds that mature in October 2030, but its press release also states that it will give initial buyers the right to purchase up to an additional $225 million worth of convertible bonds in the 13 days following the initial sale.

If all $1.725 billion worth of bonds get converted into shares at a later date, then this activity would dilute shareholders’ value by about 7.7%, based on Wednesday’s closing market cap. Of course, the market will change by the time of conversion, so the actual dilution could easily be more or less. 

According to the statement from Rivian: “The notes will be redeemable, in whole or in part (subject to certain limitations), for cash at Rivian’s option at any time, and from time to time, on or after October 20, 2027 and on or before the 20th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of Rivian’s common stock exceeds 130% of the conversion price for a specified period of time.”

The conversion price and the coupon rate of the bonds are not yet fixed. Two weeks ago, Nio sold six-year convertible bonds with coupon rates of 3.875% and seven-year bonds with a rate of 4.625%. US Treasuries have seen their yields increase in the past two weeks, so the expectation is that Rivian will have to pay higher interest rates than Nio.

On Monday, Rivian reported third-quarter deliveries that rose 140% from the same period a year ago. The company beat the delivery consensus of 14,900 vehicles with 15,564 delivered in Q3. At its production factory in Normal, Illinois, Rivian produced 16,304 vehicles during the quarter and is on pace to meet its 52,000 production goal for 2023.

NIO FAQs

Nio is a designer and manufacturer of electric vehicles based in Shanghai, China. Formerly known as NextEV, the company changed its name to Nio in 2017. Nio trades under the NIO symbol on the New York Stock Exchange (NYSE) and under the 9866 tag on the Hong Kong Stock Exchange. The company was incorporated in 2014 but went public on the NYSE in September 2020 with a $1.8 billion initial public offering. William (Bin) Li is the CEO of Nio, which he co-founded with President Lihong Qin, another Chinese business executive.

The main difference with other major EV brands like Tesla is that Nio offers battery swapping technology in addition to normal charging options. These swap stations allow drivers to switch out their batteries for fully-charged, identical batteries in less than five minutes, which allows owners to drive long distances without needing to stop for an hour to recharge like most other EVs. At the end of 2022, Nio had 1,305 battery swap locations and built its first swap station in Norway in May 2022. The goal for the customer is to reduce range anxiety.

Nio began its reign with the EP9 sport car back in 2016, and the vehicle is still being produced on a small scale. Since then, Nio has branched off into more mainstream fare. The ES8 was introduced in 2018. It is a full-size SUV with a range of 311 miles. The ES6 SUV dropped the following year and has a range of 379 miles. The smaller EC6 SUV arrived in 2020, and the ET5 and ET7 sedans were released in 2021 – the latter two with versions capable of achieving 621 miles of range. The ES7 and EC7 arrived in 2022 and 2023, respectively.

Yes. While the vast majority of Chinese automakers focus wholly on the Chinese market, Nio began its foray into Europe in late 2021. After beginning in Norway, Nio began entering the German, Danish, Dutch and Swedish markets in 2022 with plans to expand throughout the rest of the decade. Although they are not yet sold in the US, Nio vehicles are being tested in California under that state’s autonomous driving program.

Rivian stock forecast

Rivian stock halted its plunge within the $21 to $22 resistance band during the premarket trade. That region held up a rally back in January and February of this year. The late September swing low pushed RIVN stock nearly all the way to $20. Both price areas are targets for bulls to hold onto.

Just below there, the $19.50 price level supported Rivian stock during its late August doldrums. If $19.50 fails to hold, Rivian could jet all the way back to the $15 range. The area from $15.28 to $15.84 worked as support back in January before flipping into an area of resistance during the March through June period. 

The Relative Strength Index (RSI) is showing RIVN stock close to neutral. Dip buyers will likely wait until the convertible bond news tips Rivian stock into an oversold reading on the RSI, which could take a few more sessions of pain.

RIVN daily chart

 

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