Rivian CEO says bond issue does not reflect concerns about EV maker's financial health

[DuoRivians]

SAN FRANCISCO, Oct 17 (Reuters) - Rivian's (RIVN.O) earlier-than-expected bond issuance this month was aimed at strengthening the electric-vehicle maker's balance sheet before geopolitical risks make borrowing costlier and does not reflect concerns about its operations, its CEO said on Tuesday.

https://www.reuters.com/business/au...around-ev-makers-financial-health-2023-10-17/

Sponsored

 

[Rod]

Makes sense...

 

[E_Monkey]

SAN FRANCISCO, Oct 17 (Reuters) - Rivian's (RIVN.O) earlier-than-expected bond issuance this month was aimed at strengthening the electric-vehicle maker's balance sheet before geopolitical risks make borrowing costlier and does not reflect concerns about its operations, its CEO said on Tuesday.

https://www.reuters.com/business/au...around-ev-makers-financial-health-2023-10-17/

That is pure spin. 1) rates have been going up for a while, even if they don’t have an in-house economist the rate forecast has been fairly directional a looong time now. Now the dollar could change due to political risks, rates are different unless he is concerned about the Treasury curve tied to fisca cliff. The cost of capital is very high now. Cheaper would have been equity but assume their IB said demand for your stock is low, would be dilutive, and it would crush all the equity comp these guys get. Debt finiancing is expensive Now unless u need it. They are now paying internet expense. Also take this as banks wouldn’t lend to them.

2) if they had a solid in-house finance team they would have financed via loan or bond last year. Something in their forecast has changed telling them they need a liquidity cushion. Ukraine being going on a while and the Middle East was too recent. They had to start down this path a few months ago at a minimum. If this is Trump, polling has been favorable to him a while. So again they should have raised funds last year nothing changed on that front. I don’t think they have a sound read on an economic forecast but he is selling a political forecast in rate markets come on.

My guess is rates are slowing demand now as people need to finance these trucks. Demand drops so their costs and economies of scale won’t get them to break even as fast as they thought and/or some unforeseen costs maybe warranty repairs or plant build. They needed more cash to ride out as demand slows for them and eats through cash. The offerings wasn’t much so it seems this pushed out their forecast 12-18 months from where they thought they would be. There might be some steepening of improvement as they redesign but that is more aggressive. A secondary offering in 12-months would not look good. Hopefully this gets them further out.

 

[SANZC02]

That is pure spin. 1) rates have been going up for a while, even if they don’t have an in-house economist the rate forecast has been fairly directional a looong time now. Now the dollar could change due to political risks, rates are different unless he is concerned about the Treasury curve tied to fisca cliff. The cost of capital is very high now. Cheaper would have been equity but assume their IB said demand for your stock is low, would be dilutive, and it would crush all the equity comp these guys get. Debt finiancing is expensive Now unless u need it. They are now paying internet expense. Also take this as banks wouldn’t lend to them.

2) if they had a solid in-house finance team they would have financed via loan or bond last year. Something in their forecast has changed telling them they need a liquidity cushion. Ukraine being going on a while and the Middle East was too recent. They had to start down this path a few months ago at a minimum. If this is Trump, polling has been favorable to him a while. So again they should have raised funds last year nothing changed on that front. I don’t think they have a sound read on an economic forecast but he is selling a political forecast in rate markets come on.

My guess is rates are slowing demand now as people need to finance these trucks. Demand drops so their costs and economies of scale won’t get them to break even as fast as they thought and/or some unforeseen costs maybe warranty repairs or plant build. They needed more cash to ride out as demand slows for them and eats through cash. The offerings wasn’t much so it seems this pushed out their forecast 12-18 months from where they thought they would be. There might be some steepening of improvement as they redesign but that is more aggressive. A secondary offering in 12-months would not look good. Hopefully this gets them further out.

It is more about volatility in the supply chain based on regional issues than cost of the money. If battery components tighten up then so would the funds people are willing to advance to EV companies. They are building funds to ensure a strong balance sheet to complete the R2 plant should that occur.

 

[E_Monkey]

It is more about volatility in the supply chain based on regional issues than cost of the money. If battery components tighten up then so would the funds people are willing to advance to EV companies. They are building funds to ensure a strong balance sheet to complete the R2 plant should that occur.

You know what you know.

Liquidity is a fundamental balance sheet need. Boostingcash when cash is expensive (therefore has cost) is a tell of concern. Supply chain should be easier now then before. If he is worried about costs, that is tied to the rate forecast. That is also a known thing going back-more than a year.

My point is that the politics risk thing is a red herring for financial concerns. You don’t borrow from your credit card to pay for future purchases unless u need it. Most rate forecast aren’t up materially. This isn’t about Middle East as they started this road to debt offering before the events in Israel or Mid east contagion. His statements are inconsistent with rates, politics And geopolitical risks. Therefore it must be either demand related or operational risks.

Guess what rates crush auto demand via financing costs. This isn’t a WACC play to optimize their balance sheet on the rate forecast it’s a worry rates are slowing demand.

demand is being distrusted in other manufacturers already. But Rivian needs scale faster than the others. So yeah scary time for them to try and grow when the industry will likely shrink at least for next 9 months. They can grow by market share sure, but it’s an expensive truck. Mid tier Luxury goods usually the sensitive to rates. Ultra luxury now. If you are liquid to have tens of millions and you want a Porsche you will get it. But the BMWs and Audis and similar are not that. Rates will slow their sales. Unless someone has data most of these buyers are cash only. I doubt it but maybe I am wrong and most Rivian buyers pay with cash.

 

[DuoRivians]

That is pure spin. 1) rates have been going up for a while, even if they don’t have an in-house economist the rate forecast has been fairly directional a looong time now. Now the dollar could change due to political risks, rates are different unless he is concerned about the Treasury curve tied to fisca cliff. The cost of capital is very high now. Cheaper would have been equity but assume their IB said demand for your stock is low, would be dilutive, and it would crush all the equity comp these guys get. Debt finiancing is expensive Now unless u need it. They are now paying internet expense. Also take this as banks wouldn’t lend to them.

2) if they had a solid in-house finance team they would have financed via loan or bond last year. Something in their forecast has changed telling them they need a liquidity cushion. Ukraine being going on a while and the Middle East was too recent. They had to start down this path a few months ago at a minimum. If this is Trump, polling has been favorable to him a while. So again they should have raised funds last year nothing changed on that front. I don’t think they have a sound read on an economic forecast but he is selling a political forecast in rate markets come on.

My guess is rates are slowing demand now as people need to finance these trucks. Demand drops so their costs and economies of scale won’t get them to break even as fast as they thought and/or some unforeseen costs maybe warranty repairs or plant build. They needed more cash to ride out as demand slows for them and eats through cash. The offerings wasn’t much so it seems this pushed out their forecast 12-18 months from where they thought they would be. There might be some steepening of improvement as they redesign but that is more aggressive. A secondary offering in 12-months would not look good. Hopefully this gets them further out.

Disagree. Rivian got much more favorable terms on this convertible than the one in March, when tsys were lower yielding all across.

Treasury curve itself is one component, but you have to look at corporate spreads and those specific to Rivian too.

 

[RivianNowPlz]

That is pure spin. 1) rates have been going up for a while, even if they don’t have an in-house economist the rate forecast has been fairly directional a looong time now. Now the dollar could change due to political risks, rates are different unless he is concerned about the Treasury curve tied to fisca cliff. The cost of capital is very high now. Cheaper would have been equity but assume their IB said demand for your stock is low, would be dilutive, and it would crush all the equity comp these guys get. Debt finiancing is expensive Now unless u need it. They are now paying internet expense. Also take this as banks wouldn’t lend to them.

2) if they had a solid in-house finance team they would have financed via loan or bond last year. Something in their forecast has changed telling them they need a liquidity cushion. Ukraine being going on a while and the Middle East was too recent. They had to start down this path a few months ago at a minimum. If this is Trump, polling has been favorable to him a while. So again they should have raised funds last year nothing changed on that front. I don’t think they have a sound read on an economic forecast but he is selling a political forecast in rate markets come on.

My guess is rates are slowing demand now as people need to finance these trucks. Demand drops so their costs and economies of scale won’t get them to break even as fast as they thought and/or some unforeseen costs maybe warranty repairs or plant build. They needed more cash to ride out as demand slows for them and eats through cash. The offerings wasn’t much so it seems this pushed out their forecast 12-18 months from where they thought they would be. There might be some steepening of improvement as they redesign but that is more aggressive. A secondary offering in 12-months would not look good. Hopefully this gets them further out.

This isn’t all true - swaps and the 5yr have been predicting massive drops in cost of capital forecasted 24 months since June only until a few days ago.

 

[carsly]

I'll take demand softness for $100 Alex....

Look, the high-end vehicle market, ICE and EV's, is stalling hard under persistently high interest rates coupled with the erosion of accelerated depreciation available to business owners under the Tax Cuts and Jobs Act. Last year, a business owner could take 100% accelerated depreciation. This year (2023) we're down to 80% and beginning in Jan 2024 we're down to 60%. Sure, there is still Section 179 but those limits are a lot lower. With high interest rates also come higher leasing costs, so that's a tough one as well.

Look at Lucid's last reports:
- Q3 2023: 1,457 vehicles delivered https://ir.lucidmotors.com/news-rel...production-deliveries-sets-date-third-quarter
- Q2 2023: 1,404 vehicles delivered https://ir.lucidmotors.com/news-rel...s-second-quarter-2023-financial-results-track

Oh, and they came out with a cheaper version, albeit not inexpensive, at $82,400. In the US you'll find literally dozens of new Land Rover Defenders piled up almost every dealer's lots, a year ago you'd be lucky to find 1-3 available and pre-order times were 6+ months. Oh, and those would come with mandatory accessory buys of $5-10K and/or other forms of markup. I picked one up last December, last couple days of the year, at a slight discount. Now you actually negotiate on these in many markets.

Rivian vehicles are priced too high, I suspect/expect that in Q1 next year they revert prices to something close to pre-March 2022, perhaps around the time the Volvo EX90 actually reaches US shores and the Kia EV9 ramps up production. Anyone can enter the R1T shop today and select a vehicle, no waiting time. If you place a new R1S order Rivian's web site states you'll get your SUV next year - so less than a 12 month wait. Rivian also rushed out Enduro to get the R1 platform to a lower price point (and bill of materials for better margins) and has rushed out a "Max" pack that is little more than a warmed over Large pack is 10% higher capacity and likely their updated battery cells that they will roll out in the late summer 2024 mid-cycle refresh to all trims. They are behind on getting out the Standard pack and will need to do so in order to keep volumes up during the first half of 2024. That leaves a real hole from mid-2024 to mid-2025 or so until they can get a lower priced R2 to market. Until then, the best option is to retrim the R1 with special 'packs' a la Land Rover and find ways to drop the bill of materials to help cash flow in the near term.

Thus the new financing. I suspect the unit volumes won't hold up under current prices without the Standard pack appearing in Q1 after they exhaust most of the pre-order backlog. That provides a volume stabilizer as they work the rest of the puzzle. Raising the cash now will be easier than in Q1 after demand softness and price erosion is more evident to the street. Opportunistic move, but the signs ahead are troubling.

 

[Mark_AZR1T]

I'll take demand softness for $100 Alex....

Demand softness for $250 with a bird-in-the-hand with some added bond-cash now without diluting base evaluations for $100. The question I have is when/if Rivian is going to adjust pricing? Q1 2024 is my bet.

 

[DuoRivians]

I'll take demand softness for $100 Alex....

Look, the high-end vehicle market, ICE and EV's, is stalling hard under persistently high interest rates coupled with the erosion of accelerated depreciation available to business owners under the Tax Cuts and Jobs Act. Last year, a business owner could take 100% accelerated depreciation. This year (2023) we're down to 80% and beginning in Jan 2024 we're down to 60%. Sure, there is still Section 179 but those limits are a lot lower. With high interest rates also come higher leasing costs, so that's a tough one as well.

Look at Lucid's last reports:
- Q3 2023: 1,457 vehicles delivered https://ir.lucidmotors.com/news-rel...production-deliveries-sets-date-third-quarter
- Q2 2023: 1,404 vehicles delivered https://ir.lucidmotors.com/news-rel...s-second-quarter-2023-financial-results-track

Oh, and they came out with a cheaper version, albeit not inexpensive, at $82,400. In the US you'll find literally dozens of new Land Rover Defenders piled up almost every dealer's lots, a year ago you'd be lucky to find 1-3 available and pre-order times were 6+ months. Oh, and those would come with mandatory accessory buys of $5-10K and/or other forms of markup. I picked one up last December, last couple days of the year, at a slight discount. Now you actually negotiate on these in many markets.

Rivian vehicles are priced too high, I suspect/expect that in Q1 next year they revert prices to something close to pre-March 2022, perhaps around the time the Volvo EX90 actually reaches US shores and the Kia EV9 ramps up production. Anyone can enter the R1T shop today and select a vehicle, no waiting time. If you place a new R1S order Rivian's web site states you'll get your SUV next year - so less than a 12 month wait. Rivian also rushed out Enduro to get the R1 platform to a lower price point (and bill of materials for better margins) and has rushed out a "Max" pack that is little more than a warmed over Large pack is 10% higher capacity and likely their updated battery cells that they will roll out in the late summer 2024 mid-cycle refresh to all trims. They are behind on getting out the Standard pack and will need to do so in order to keep volumes up during the first half of 2024. That leaves a real hole from mid-2024 to mid-2025 or so until they can get a lower priced R2 to market. Until then, the best option is to retrim the R1 with special 'packs' a la Land Rover and find ways to drop the bill of materials to help cash flow in the near term.

Thus the new financing. I suspect the unit volumes won't hold up under current prices without the Standard pack appearing in Q1 after they exhaust most of the pre-order backlog. That provides a volume stabilizer as they work the rest of the puzzle. Raising the cash now will be easier than in Q1 after demand softness and price erosion is more evident to the street. Opportunistic move, but the signs ahead are troubling.

Lucid is selling a high priced sedan. No one wants another high priced sedan.

I’ll bet anyone that Rivian isn’t going to lower prices or that demand won’t be greater than supply for a while.

 

[carsly]

Demand softness for $250 with a bird-in-the-hand with some added bond-cash now without diluting base evaluations for $100. The question I have is when/if Rivian is going to adjust pricing? Q1 2024 is my bet.

I'd say end of Q1 or start of Q2 for the price cuts. By then the pre-order backlog should have been satisfied at the mix of price points and the Bosch Quad will likely get retired. Standard pack should become available BUT they won't be ready to roll out the refreshed model until late 2024. Something has to fill the six-month gap and that's going to be price cuts as the current model will be end of life before the refresh.

The one wildcard I see is if interest rates start to ebb next spring. That could prop up demand for a quarter or two longer at current price points as financing and leasing both get more attractive. But I wouldn't bet a public company on that.

 

[carsly]

Lucid is selling a high priced sedan. No one wants another high priced sedan.

I’ll bet anyone that Rivian isn’t going to lower prices or that demand won’t be greater than supply for a while.

BMW and Mercedes are betting big that you're wrong. The i5 is just coming out in the US. Sedans haven't died off just yet, but aggressive pricing on Tesla's Model S is really putting the hurt on whatever portion of this market still exists. I wouldn't put it past Elon & Co. to revert pricing on the Model S to $69,420 before the year is out.

I think the bigger issue for Rivian is they've kind of had the three-row SUV market to themselves in 2023 so could charge what they wanted. No, the Model X is not an SUV and the third row is a joke. Next year we'll see the Kia EV9 and Volvo EX90 ramp up production along with whatever else folks have in the pipeline. Both are priced at/below Rivian's pricing today.

 

[DuoRivians]

BMW and Mercedes are betting big that you're wrong. The i5 is just coming out in the US. Sedans haven't died off just yet, but aggressive pricing on Tesla's Model S is really putting the hurt on whatever portion of this market still exists. I wouldn't put it past Elon & Co. to revert pricing on the Model S to $69,420 before the year is out.

I think the bigger issue for Rivian is they've kind of had the three-row SUV market to themselves in 2023 so could charge what they wanted. No, the Model X is not an SUV and the third row is a joke. Next year we'll see the Kia EV9 and Volvo EX90 ramp up production along with whatever else folks have in the pipeline. Both are priced at/below Rivian's pricing today.

BMW and Mercedes betting one way isn’t indicative of anything. I’d take the other side any day. The only vehicle doing well from them is the EQS suv. Even the iX is doing rather poorly.

EV9 and EX90 preorders/orders have been lukewarm at best. $750 deposits for the EV9 were under expectations from what I’ve heard.

At the end of the day, we’ll see how it plays out but I’d bet any day Rivian won’t have any issues moving their cars. 85k vehicles won’t be a problem. Tons of rich people who are ready to have a 7 passenger EV Suv.

If anecdotal evidence helps, the U2 caravan had 8 R1Ss. They could have any other suv, eg an Escalade, EQS SUVs, but they chose the R1S.

Don’t think as a middle-class commoner and extrapolate to the general market. Premium/luxury segment will always be strong

Sponsored