If you’re going to invest in an electric vehicle manufacturer in 2023 and 2024, you need to be selective. EV demand is slowing, and Rivian Automotive (NASDAQ:RIVN) isn’t necessarily the best pick of the bunch. The best grade we can assign to RIVN stock is a “D” and prospective buyers should spend extra time on their due diligence.
Doing your research on Rivian Automotive will, unfortunately, involve learning about a highly unusual type of debt. It’s complicated, but we’ll provide the basic facts in a moment. When all is said and done, you may agree that holding Rivian stock for the long term is a risky proposition.
RIVN Stock Traders Learn About ‘Phantom Bonds’
If you weren’t specifically interested in Rivian Automotive, then you probably would never have to learn about “phantom bonds.” Yet, here you are and if you want to be fully informed about Rivian, then get ready for a strange news item.
Recently, Bloomberg, Reuters and OilPrice.com reported that Rivian Automotive “structured out” $15 billion worth of debt in what’s known as “phantom bonds.” Evidently, this type of debt is legal and can be used to get a property tax break in Georgia.
A Form 8-K filing from Rivian specifies that the “minimum annual scheduled” payments “start at $1.5 million and gradually increase to $20.4 million by 2047,” and are “subject to further increases.” Hence, it sounds like there’s real money, not “phantom” money, at stake here.
Now, we’re not suggesting that issuing “phantom bonds” is shady, or that Rivian Automotive itself is shady. Rivian is reportedly facing a lawsuit alleging that the company defrauded its shareholders, but that’s a different story entirely.
It’s highly unusual, however, that the issuance of these “phantom bonds” isn’t mentioned anywhere on Rivian’s investor relations main page or news page. Certainly, prospective investors should keep tabs on this story for future updates.
Big Red Flags for Rivian Stock
Besides learning about “phantom bonds,” Rivian stock traders will also need to consider some red flags. At the end of the day, you might simply decide that the stress of investing in Rivian Automotive just isn’t worth it.
Rivian Automotive is a consistently unprofitable company. Investors may have been willing to overlook this problem in 2020 and 2021, when credit was cheap and easily available. Nowadays, however, credit conditions are much tighter and that’s a problem for income-negative businesses.
Prospective investors have to contend with Rivian Automotive’s dwindling capital position. Alarmingly, Rivian’s position of cash and cash equivalents dropped from $11.568 billion as of Dec. 31, 2022, to $7.941 billion as of Sept. 30, 2023.
Besides, Rivian Automotive seems like a reluctant latecomer to the EV price war. Sure, the company reportedly plans to release a vehicle with a starting price of around $40,000. Don’t get too excited, though. Customers won’t be able to purchase these more affordable Rivian EVs until 2026.
RIVN Stock: Don’t Wait Around for Phantom Profits
Frankly, it will be challenging for Rivian Automotive to succeed when interest rates are high and the EV market is so competitive. Ask yourself: Do I really want to take the trouble to learn about Rivian’s “phantom bonds”? Plus, am I happy with Rivian Automotive’s balance sheet?
Perhaps, it’s wise just to monitor Rivian Automotive from the sidelines. For now, the best grade we can assign to RIVN stock is a “D.” We’re not currently recommending it to investors, so feel free to look around for stocks with more favorable risk-to-reward profiles.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
