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Suddenly things have become very exciting for rivian (NASDAQ:RIVN). Its shares rose 9% in yesterday's (June 25) trading session in New York. That still leaves it more than 90% down since its 2021 listing.
However, once the markets closed, the price skyrocketed. In today's pre-trading it is up a phenomenal 38%. What the hell is going on? Should I get in on some of the action?
Major partnership announced
Electric vehicle (EV) maker Rivian has been losing money. Last year, the firm delivered just over 50,000 vehicles. Revenues amounted to a not inconsiderable $4.4 billion.
But the net loss, although reduced from the previous year, still amounted to a painful $5.4 billion. The free cash outflow was $5.9 billion.
Yes, the company sells thousands of vehicles, and yes, those sales are expected to rise sharply in the coming years, but it's posting huge losses and burning through cash like a drunken sailor.
Enter the polar opposite of a drunken sailor… a large, sober, tried-and-true German corporation. Specific, VolkswagenYesterday it was announced that the giant car manufacturer and Rivian would form a joint venture.
Why investors are excited
That announcement is the reason why stocks soared in after-hours trading. It's also why I expect we'll see a strong move higher as soon as the main market opens this morning (US time). That said, we may see sharp moves both up and down in today's New York trading session.
Why are investors so excited?
For a cash-burning company like Rivian, the prospect of any bottom-line-enhancing investment can be exciting, depending on the conditions that are imposed.
Furthermore, when it comes to manufacturing and selling vehicles, Volkswagen clearly knows what it is doing. Last year it sold 9.2 million.
So for such an experienced operator to see significant value in Rivian reinforces the feeling that the electric vehicle company may actually have developed something that has high value.
Volkswagen will not spend $5 billion on shares
But here's the problem. Volkswagen isn't investing its money in these stocks right now, and maybe it won't at all.
It is creating a joint venture with the company, which both companies will own and control equally. The announcement spoke of “an expected total deal size of $5 billionOf that amount, only $1 billion is likely to arrive soon.”Up to $4 billion in additional planned investments“It is an aspiration subject to the fulfillment of conditions, not a specific commitment to inject money.
That $1 billion will be in the form of convertible loan notes, so they should be converted into Rivian stock.
The other $4 billion, if it comes at all, will come in the form of $2 billion in equity and the same amount split between a cash injection and a loan for the joint venture.
Strategic investment perspective
I am an investor, not a trader. Therefore, I wouldn't buy shares hoping for a short-term rebound.
From a long-term perspective, Volkswagen seems to like Rivian's technology. I see their move as a vote of confidence from a strategic investor in the technology. That's not the same as a vote of confidence from a financial investor in the stock's valuation. I have no plans to invest.
