Rivian Automobile (NASDAQ: RIVN) The stock soared after news of a surprise new deal with the global auto giant Volkswagen earlier this week. As investors digest more details about the multifaceted deal, some are quickly taking advantage of the rising stock price.
Today, Rivian shares were down 7.7% as of 2:45 p.m. ET. At that time, the stock was still up nearly 30% for the week. So what should investors think about the volatility in Rivian stock?
Rivian Investor Day Explains It All
To recap the partnership news, Volkswagen will invest up to $5 billion in Rivian to acquire a share of its software and electric vehicle (EV) technologies. This includes an initial investment of $1 billion in the form of a convertible security. 2 billion dollars investment in common shares and an additional $2 billion to create a joint venture (JV) in electric vehicle technologies will follow, subject to certain conditions and regulatory approvals.
What might tempt investors to take profits today is the fact that Volkswagen’s investment is not the guaranteed lifeline that some investors might have initially assumed. On the one hand, it will be dilutive for existing shareholders. The conversion price of the bond will be less than $11 per share. That’s more than 50% below the price Rivian stock was trading at heading into 2024. Volkswagen’s investment will also only help get Rivian to the point where it will deliver its next-generation R2 models in 2026. if it continues to control its spending.
Management outlined its cost-cutting plans during its Investor Day presentation Thursday evening. Although it plans 20% reductions in material costs through the end of this year, the bulk of the savings is expected to be realized next year, when it begins production of the R2 models. Reduction in capital expenditure A total amount of $2.5 billion will also be paid until 2025.
The extended timeline and upcoming dilution have prompted some investors to take profits today. For long-term investors, however, this week has been an overall bullish one for Rivian.
Should You Invest $1,000 in Rivian Automotive Right Now?
Before you buy Rivian Automotive stock, consider this:
THE Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the 10 best stocks Investors should buy now…and Rivian Automotive isn’t one of them. The 10 selected stocks could generate monstrous returns in the years to come.
Consider when Nvidia I made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $759,759!*
Stock Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. Securities Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns June 24, 2024
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 Down was originally published by The Motley Fool
