Why Did US Electric Vehicle Company Rivian's Stock Plunge by Double Digits?

The stock price of Rivian, a U.S. electric vehicle company regarded as the "second Tesla" and attracting attention from foreign investors, plunged by double digits in just one day. Although recent production exceeded market expectations, boosting earnings expectations, the stock price plummeted following news of a convertible bond issuance worth 2 trillion won.

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On the 5th (local time) in the New York stock market, Rivian's stock closed at $18.27 per share, down 22.88% from the previous session. At one point during the trading session, Rivian's stock price even threatened the $18 level.

The major factor was Rivian's announcement the day before of plans to issue $1.5 billion (approximately 2 trillion won) in convertible bonds to the U.S. Securities and Exchange Commission. Convertible bonds are bonds with the right to convert into company stock, typically issued by companies lacking sufficient funds to secure liquidity. The conversion of convertible bonds into stock can dilute the value of existing shareholders' shares, so issuing convertible bonds generally acts as a factor causing stock prices to fall. In March, Rivian also issued $1.3 billion in convertible bonds, causing stock price fluctuations.

This convertible bond issuance is attributed to a slowdown in electric vehicle demand and weakened financing capacity due to high interest rates. Rivian's cash and cash equivalents decreased from $10.2 billion at the end of Q2 this year to $9.1 billion at the end of Q3. Along with this, Rivian announced that its Q3 sales estimate would be between $1.29 billion and $1.33 billion. CNBC analyzed that although Rivian's sales increased compared to a year ago, the growth rate has clearly slowed.

The heightened stock price expectations following Rivian's announcement on the 2nd of quarterly production exceeding forecasts were shattered by the convertible bond issuance plan. Rivian reported producing 16,300 electric vehicles and delivering 15,560 units in Q3 this year, surpassing market expectations. Additionally, it stated that cumulative production through Q3 reached 40,000 units, raising expectations that the annual production target of 52,000 units could be exceeded.

Wall Street holds a buy rating on Rivian. Earlier this month, Evercore ISI upgraded its investment rating on Rivian from hold to buy and raised the target price to $35. Goldman Sachs raised its target price to $24 after Rivian's vehicle deliveries exceeded market expectations last quarter. Besides Evercore ISI, there are 13 buy ratings, 7 hold ratings, and 1 sell rating confirmed. The average target price among these institutions is $28.57.

Rivian is considered a frontrunner among electric vehicle startups chasing Tesla. It produces the electric pickup truck R1T and the SUV model R1S. Rivian is also manufacturing electric delivery vans to supply Amazon, its largest shareholder and the world's largest e-commerce company.