Rivian Automotive plans to sell $1.3 billion worth of bonds to raise capital

Rivian Automotive, one of the largest car manufacturing companies, plans to sell bonds worth $1.3 billion. The company announced this earlier this week as the demand slows and lofty costs increase. The situation has triggered a cash crunch in the electric vehicle manufacturing sector.

Rivian Automotive to sell $1.3 billion worth of bonds

Rivian shares have been reacting to the news about the plan to sell bonds. On Tuesday, the shares plunged by 14% as investors became concerned about the company’s likelihood of sustaining operations because of the negative macroeconomic factors that could disrupt activities.

The initial investors at this company will have the option to purchase an additional $200 million worth of bonds that will be used to make a settlement 13 days after the bonds have been issued, according to the company.

The capital raised from this sale will support the company’s planned launch of a smaller R2 vehicle family by the company. The automotive maker has also supported its decision to take convertible debt, saying it was an “optimal cost of capital versus selling equity at today’s levels.”

The company has said that the bonds would be “green” bonds. Such bonds are used by companies to give them a chance to raise debt at a lesser cost from investors who want to generate lower returns in exchange for supporting projects geared towards environmental sustainability.

These green bonds are scheduled to mature in March 2029. They will allow investors to convert the bonds into cash or a stake in the automotive company. Most of the terms regarding the bond, such as the interest rate and initial conversion rate, will be determined when the offering is being priced.

Rivian looks to lower costs

Irvine, a subsidiary of Rivian based in California that manufactures R1T electric pickup trucks and R1S SUVs, has said it has enough cash to support its operations until 2025. The company reported cash and cash equivalents worth $11.57 billion at the end of December last year, a significant drop from the $13.27 billion reported during the previous quarter.

Rivian has also been taking measures to reduce costs. Last month, the company announced that it would be laying off 5% of its workforce. Towards the end of last year, the company also shelved some of its previous plans to save cash.

Rivian halted plans to manufacture delivery vans in Europe by partnering with Mercedes. The company had also earlier postponed the planned release of a smaller R2 vehicle family by one year to 2026. This vehicle is being manufactured at the company’s $5 billion plant that is being built in Georgia.

Rivian has not had much success in recent years as the company has been losing money on the vehicles it manufactures. The company’s forecasts show that the 2023 production levels are significantly below the estimates made by analysts. The company is also dealing with issues around challenges with the supply chain after failing to meet its target in 2022.