Shares of Rivian & Tesla Hit a Downturn

In recent days, news regarding the electric vehicle industry has been making waves. While this relatively new market sector has generated more than a few headlines as many consumers make the switch to more energy-efficient forms of transportation, industry leaders Tesla (TSLA) and Rivian (RIVN) seem to be facing strong headwinds this week. Let’s take a closer look:

Tesla Cools Down

World-famous and controversial multibillionaire Elon Musk has often been in the media since becoming Tesla’s CEO, but his takeover of microblogging platform Twitter last year had repercussions far beyond the cybersphere. 

Musk’s acquisition deal was fraught with controversy almost from the beginning and nearly made it to litigation courts in the U.S. state of Delaware in 2022. Once the agreement finally reached fruition, however, the Tesla co-founder’s management style reportedly aroused discontent from within the ranks of Twitter’s workforce, and a related issue formed the crux of the controversy facing Musk this week.

On Monday, an Icelandic employee of Twitter reached out to Musk in a tweet requesting knowledge of his own employment status after being unable to access his work computer. Not only did it turn out that the worker in question, Haraldur ‘Halli’ Thorleifsson had formed part of the massive layoffs instituted by Musk, but the latter also publicly mocked his work performance. Upon learning that Thorleifsson is in fact disabled, Musk publicly apologised on Tuesday.

While this exchange may be very bad optics for Musk, and thus perhaps have led in part to Tesla’s almost 8% fall in share price this week, other analysts have pointed to Wednesday’s investor day presentation as possibly having a more direct effect on the drop. 

It seemed that traders and investors alike may have been hoping for Elon Musk to reveal yet another proprietary vehicle to join Tesla’s line, but such was not to be. Instead, the presentation mainly focused on presenting new senior management personnel to the public, as well as announcing plans for a new production facility in northern Mexico. Tesla has recently seen fit to lower prices of its electric vehicles in order to better compete with China-based industry rivals, like Rivian and NIO (NIO), and one of them has also been making news in recent days. (Source:Barron’s)

Rivian Investors Turn Sour

Chinese electric vehicle industry giant Rivian raised billions when it went public in 2021, but the firm seems to be facing serious growth constraints at the moment. Rivian shares have plunged 11.7% over the course of the past two trading days following the announcement of the executive suite’s latest financial plans.

On Monday evening, Rivian announced that, in order to raise much-needed funds for the company, convertible notes would be issued. These green convertible notes hoped to raise $1.3 billion in cash, are financially a sort of hybrid between a bond and stock option.

What this means is that buyers will be purchasing portions of Rivian’s outstanding debt, but these notes are known as convertible because they also have the ability to transform into shares at a certain point, yet to be revealed by the firm. Furthermore, Rivian’s convertible note issue in particular is known as green given that the company itself is classified as environmentally responsible.

While Rivian ended 2022 with more than enough in its vaults to fund operations for the near future, executives seem to already be thinking farther ahead. Given the unpredictable nature of markets in general, Rivian may want to secure the funds' future expansion could necessitate now.

However, the issue of convertible notes, while perhaps effective as a capital-raising measure, may not be looked upon positively by stock traders, as the potential conversion to stock could dilute the value of current investors’ holdings in the company in the future. Rivian shares are down by just under 85% since the company’s IPO, and time will tell whether investor sentiment changes toward this industry leader in the days and weeks ahead.

The electric vehicle industry has been the source of more than a few headlines in the recent past, and it’s as yet unknown whether the shifting tides of the global economy will lift this market sector skyward or leave it stranded on the beach. Market watchers and traders alike will have to wait and see.