There’s nothing inherently wrong with rival automotive manufacturers making deals. Thus, it’s perfectly fine that electric vehicle manufacturer Rivian Automotive (NASDAQ:RIVN) has a charging-network agreement with Tesla (NASDAQ:TSLA).
Still, RIVN stock traders need to be careful. The deal with Tesla doesn’t solve Rivian’s other problems, especially in the area of revenue versus expenditures.
There’s also a recent news item to consider, which many commentators seem to be ignoring.
It involves Rivian Automotive’s acquisition of a company in Sweden, and as you might expect, Rivian is spinning it as a positive development.
However, prospective investors should consider whether Rivian Automotive ought to be acquiring businesses now, especially in light of the automaker’s financial condition.
Here’s Why RIVN Stock Jumped
Not long ago, William WhiteRivian Automotive will adopt Tesla’s EV charging standard.
That’s a fancy way of saying Rivian EV drivers will be able to use Tesla Superchargers with adapters, possibly as early as the spring of 2024.
Besides, the market’s positive reaction to this development didn’t last long. Indeed, the Tesla news bump only prompted a single-day rally. As it turned out, the gains in RIVN stock were coughed up within a couple of subsequent trading sessions.
Rivian Automotive’s New Acquisition
Furthermore, Rivian Automotive still has the same old problems irrespective of the deal with Tesla. Just to recap, Rivian Automotive has been unprofitable one quarter after another, and analysts don’t expect Rivian to suddenly turn income-positive during the current quarter.
Also, Rivian Automotive’s expenditures need to be kept under control. The automaker’s cost of revenues practically doubled from $597 million in 2022’s first quarter to $1.196 billion in the first quarter of 2023.
I could also mention that Rivian Automotive’s cash, cash equivalents and restricted cash declined substantially year over year in Q1 2023, but I’m sure you get the idea. However, I’m not sure if Rivian’s management gets the idea as the company recently announced a new acquisition.
Here’s the scoop. Rivian Automotive reportedly acquired Iternio, Swedish developer of developer of trip-planning app A Better Routeplanner. As you might expect, Rivian Automotive CEO RJ Scaringe basically pitched this app as the greatest thing since sliced bread.
Unfortunately, according to Reuters, Scaringe “did not disclose the value of the deal.” So, we have no way to know how much money Rivian Automotive spent to acquire Iternio. Hence, it’s impossible to predict whether Rivian paid a fair price. Plus, we can’t determine long it might take for the automaker to recoup its expenditures.
Tesla Deal Won’t Rescue RIVN Stock
Thoughtful investors should wonder whether financially faulty Rivian Automotive ought to spend money to acquire companies now. It’s also alarming that Scaringe didn’t disclose the full financial terms of the deal.
The deal with Tesla is fine for Rivian Automotive. However, the market quickly figured out that it won’t save RIVN stock in the long term. So, feel free to keep tabs on Rivian in 2023, but don’t be in a rush to invest in the company.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.