Why Rivian Shares Popped Friday

Rivian just found another way to conserve capital.

Rivian Automotive (RIVN 2.44%) stock popped Friday morning after the company reported that it has received a large incentive package from the state of Illinois to expand its electric vehicle (EV) manufacturing plant.

Shares jumped as much as about 6% and were still higher by 2.4% as of 12:35 p.m. ET. In early March Rivian announced it would adjust its expansion plans that included constructing a new multibillion-dollar plant in Georgia. That new facility would produce Rivian’s R2 second-generation vehicle platform, the company originally said. But Rivian shifted gears as the pace of EV sales growth has slowed.

Rivian’s next-gen plans get a boost

Rivian said in March it would save $2.25 billion in capital expenditures, product development investment, and supplier sourcing opportunities from the decision to begin building the R2 in Illinois instead. Now, an $827 million grant from Illinois’ Department of Commerce & Economic Opportunity will help expand the existing plant from an annual capacity of 150,000 to 215,000 units. That is worth more than half the $1.5 billion the company said it will spend to expand the plant.

Rivian has produced more than 100,000 electric vehicles at the facility since it began production. But it doesn’t expect to increase volume in 2024 compared to the 57,000 vehicles it manufactured last year. That is partially due to some downtime it will take to expand in preparation for the R2 midsize SUV.

That vehicle is expected to sell at a starting price of around $45,000 and should appeal to a broader customer base and compete more directly with Tesla’s Model Y. The incentive package will also help Rivian conserve capital that it can eventually use for the Georgia plant construction.

Investors cheered the news today. The positive move in the stock contributed to a week in which Rivian shares moved higher by more than 10%. That positive momentum may continue if the company provides an optimistic outlook when it reports first-quarter earnings next week on May 7 after the market close.

Howard Smith has positions in Rivian Automotive and Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

This article was originally published by a www.fool.com

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