As Volkswagen Invests in Rivian, Should You, Too?
Let's see if RIVN is good for a day trip or a cross-country adventure.
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Rivian RIVN ... now, that's Investing. ... Not me. I day-traded the stock (it was really only one trade, in and out) on Tuesday, after the closing bell.
What I'm talking about is the deal announced on Tuesday afternoon between Volkswagen VLKAF and Rivian. After the regular trading session came to a close on Tuesday, the two automakers disclosed that the legacy manufacturer, Volkswagen, intends to form a joint venture with the younger maker of electric vehicles.
Volkswagen will invest over time, $5 billion in Rivian with the first $1 billion invested up front. The idea is to accelerate the development of "next generation" battery powered vehicles using modern software. This deal is intended to allow both companies to combine strengths in a way so that weaknesses are paved over or diminished in a complementary relationship.
Rivian will contribute expertise in electrical vehicular architecture, while licensing certain intellectual properties to the joint effort, an area where perhaps Volkswagen felt it was either behind or wanted to take a leadership role. Volkswagen gets to contribute cash and maybe lines of distribution. Rivian had been burning cash at a torrid pace. The company has run with an operating cash loss of $4.614 billion over the trailing 12 months as of the end of the March quarter. Tack on capital spending of $997 million, and we're talking about "free" cash loss of $5.611 billion.
For that fiscal first quarter, Rivian posted an unadjusted loss per share $1.48 on revenue of $1.2 billion. The earnings were a miss, but the sales? That print was good for a beat and good enough for year-over-year growth of 81.5%. During the quarter, Rivian had generated a gross loss of $38,784 per vehicle. Unacceptable? Of course. But the company provided guidance that night that after a retooling upgrade would allow for the it to achieve a modest gross profit by the fourth quarter of this year.
About Last Night's Trade
I cut out after the bell last night. My wife needed an MRI on one of her knees and I had to drive her. After they called her in, I had nothing to do, so I headed out to the parking lot as it was a nice day, popped the hatch on my gasoline powered vehicle, and plopped down with my iPhone and my ear buds. I know there is a Twitter or "X" Spaces at that time every business day that has a number of interesting traders as speakers and I like to hear how the younger crowd thinks.
If you're expecting that these kids aren't highly motivated or aren't already at an advanced level, you can think again. Nothing lazy or ignorant about this crew. So, if you have an "X" account and are in this trading / investing life, maybe you want to give these kids a listen. The Spaces are hosted by an account known as @StocksOnSpaces and last night, these kids made me a quick 12% on a trade just because I tuned in at the right time.
The above news had just broken and was dominating the conversation. The traders or panelists were discussing whether or not the news was good for Rivian, good for Volkswagen or good for both. As they debated, they also disseminated the news. In far more timely fashion I might add, than one probably got on the legacy cable FinTv networks. I jumped on that pitch like Willie Stargell teeing off on a Randy Jones fastball and my wife came out of the medical building. After making the short trip home, I made the sale at $18.29 for a quick 12%.
Just an FYI, today's high sale so far is $16.18. I see a last sale bearing a $15 handle, still up almost 40% from Tuesday's closing sale. A nice trade just because I had nothing to do and instead of goofing off, I listened in to hear a bunch of fire-breathing go-getters who literally every single trading day want to keep talking about stocks long after the bell rings. I'm an old dog. So are some of you. We either learn new tricks, or we stop adapting, and improvising.
Is Rivian Now Investable?
It might be. How's that for non-committal? It has for now, significantly improved its still imbalanced cash flow picture. Note, I did not hold on to those shares overnight. Those prices did seem a little too euphoric.
OK, hope you have your thinking caps on, because there's a lot going on here. Relative strength and the stock's daily Moving Average Convergence/Divergence indicator have both spiked in direct response to the news. Throw them out for now. We have RIVN running into resistance this morning at a 31.8% Fibonacci retracement of the July 2023 into April 2024 selloff. That's bearish. The stock has now filled the gap created in February, while creating a new one this morning. This too, is probably bearish.
But the stock has found support at its 50-day simple moving average and retaken its 200-day SMA. This could be bullish, especially if that 200-day line holds through this week. Lastly, the shares have broken out of a downward sloping Pitchfork model that has been in place since last July, eleven months ago. This too, could be bullish as if the 200-day line fails, the upper tine of the Pitchfork might catch the shares ahead of filling the new gap.
My Take on RIVN
I do not want to own equity, at least not here, and not now. That said, would I be willing to go out to August monthly expirations on the 16th of that month and write $11 puts for about $0.45? Maybe. If it never comes in, wish it well and get paid the premium. If it does come in and the trader / investor does get tagged in mid-August? Well then, a net basis of $10.55 is a whole lot better than one with a $15 handle, now, isn't it? Plus, that net basis will probably be below the 50-day SMA at that time, so it might be a fairly safe place to hang out.
At the time of publication, Guilfoyle had no position in any security mentioned.
