FinTides (Formerly McElwee Report) Logbook #1 — 10/28/2024
Rivian (RIVN) and the Department of Energy's Loan Program Office
After a voluntary sabbatical, I’ve decided to resume sending my newsletter under a new name with a new purpose. Instead of The McElwee Report (as illustrative and creative a name it may be), I’ve decided to rename it FinTides.
The new title’s two syllables evoke its purpose. Put simply, “fin” which, intuitively, implies the financial markets; and “tides,” which refers to sea tides. Living in Charleston, SC, and exploring the Sea Islands around it, I’ve come to recognize rising sea tides as metaphorical to market breakouts. Like the gravitational pull of the moon ultimately brings high tide and its proliferation of maritime life, there are often market catalysts that bring new value for companies and their investors.
In The McElwee Report, I started to take this approach of recognizing emerging themes, or tides, that were potentially on the verge of a market recognizance, or more aptly, a “tidal surge,” due to a potential catalyst. These companies included Chinese e-commerce, like JD.com, Inc. (JD), which, from the March 19, 2024, edition, rose to 74% by early October. Or, from the July 16, 2024, edition, quantum computing as exhibited by IonQ (IONQ), whose stock price has risen 90% since publication.
To quote Brutus in William Shakespeare’s Julius Caesar, “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune.”
But, to also quote Julius Caesar’s modern equivalent, Dumb and Dumber, I “triple stamp it, no erasies” that this newsletter is not to be construed as investment advice. However, I expect its form to evolve over time.
But I hope these (let’s say at least bi-weekly for now) logbooks will bring light to new opportunities and economic—and ultimately societal—changes.
Because even the wealthiest investor is lost without unique insight.
All the best,
Bob McElwee
All Highlighted Equity Trends This Year…
This logbook highlights Rivian (RIVN).
Undoubtedly, the Presidential Election will impact the market, and potentially this catalyst. And, two days later, the Federal Reserve is expected to lower interest rates, which appears to be very likely (97% probability of 25 basis points cut).
Nonetheless, here is an interesting, potential catalyst for Rivian (RIVN)…
Rivian (RIVN)
Description: American manufacturer of electric vehicles.
Price / Market Cap: $10.45 / $10.54 Billion
Potential Catalyst: A potential near-term conditional commitment announcement for an Advanced Technology Vehicles Manufacturing Loan Program (ATVM) loan from the U.S. Department of Energy's (DOE) Loan Programs Office (LPO).
Rivian is in a stage of cash drain. And its stock price has dropped ~55% so far this year. The chart looks like death by a thousand cuts.
However, the company appears to be in "advance due diligence" for government financing through the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) via the Department of Energy's (DOE) Loan Programs Office (LPO). The amount will likely be for more than $1B with non-dilutive financing (favorable to equity holders) at the rate of the applicable U.S. Treasury rate (~4%) for the term of the loan with no credit spread. Proceeds will be used to build their Georgia, US, manufacturing plant that may produce lower cost electric vehicles, which, as Tesla's earnings indicated last week, are growing in demand.
In the U.S., to receive federal funding, a project must be evaluated in accordance with the National Environmental Policy Act (NEPA). During this process, the NEPA seeks public comments on the environmental assessment completed for the applicant. Rivian's draft environmental assessment now appears in the DOE LPO’s NEPA-Related Public Involvement section with a public comment end date of November 4th (the end date of the comment period may not have an impact on a potential conditional commitment announcement date, which is explained later).
There is no absolute guarantee when or even if they will receive a conditional commitment. Additionally, if President Trump returns to office, there may be uncertainty as to the future of this program. Nonetheless, the DOE LPO is rushing to post conditional commitments prior to Election Day. And, as the image below shows, the federal environmental compliance review is indeed an advanced stage item prior to a conditional commitment. To note, a conditional commitment is basically a term sheet that is fully approved by the Department of Energy.
Rivian would not be the first electric automaker to receive this type of financing. In fact, in January 2010, Tesla (TSLA), was one of the first recipients of a loan ($465 million) from the DOE LPO.
Other recent public companies receiving conditional commitments include the following. I am showing this for broader context, as obviously each case is unique to each company.
Gevo Inc. (GEVO)
Blue Line Shows Price Before Announcement. Created with TradingView Announcement Date: 10/16/2024
Type of Financing & Amount: Clean Fuels & Products | Title 17 Innovative Energy; $1.46 billion loan guarantee
Previous Closing Price: $2.25
1-Day Change: +18%
Post-Announcement Intraday High: +38%
3-Day Change: +46%
ROI as of Today: +32%
Calumet (CLMT)
Blue Line Shows Price Before Announcement. Created with TradingView Announcement Date: 10/16/2024
Type of Financing & Amount: Clean Fuels & Products | Title 17 Energy Infrastructure Reinvestment; Up to $1.44 billion loan guarantee
Previous Closing Price: $21.93
1-Day Change: 0%
Post-Announcement Intraday High: +14%
3-Day Change: -4%
ROI as of Today: -3%
Aspen Aerogels Georgia, LLC (ASPN)
Blue Line Shows Price Before Announcement. Created with TradingView Announcement Date: 10/16/2024
Type of Financing & Amount: Advanced Vehicles & Components | ATVM; Loan of up to $670.6 million
Previous Closing Price: $22.44
1-Day Change: +13%
Post-Announcement Intraday High: +20%
3-Day Change: -4%
ROI as of Today: -15%
EVgo (EVGO)
Blue Line Shows Price Before Announcement. Created with TradingView Announcement Date: 10/3/2024
Type of Financing & Amount: EV Charging | Title 17 Innovative Energy; Up to $1.05 billion loan guarantee
Previous Closing Price: $3.93
1-Day Change: +61%
Post-Announcement Intraday High: +65%
3-Day Change: +76%
ROI as of Today: +124%
I’d like to point out that in the cases of Calumet (CLMT) and EVGo (EVGO), Calumet had a public comment period from 9/11-10/14/2024 and received a conditional commitment on 10/16. EVGo received a categorical exclusion, meaning that the project had no significant impact on the environment, which was posted on 10/23/2024 and the company received a conditional commitment on 10/3/2024.
As far as the comment period, on 7/9/2024, Entek received a conditional commitment for a ATVM loan but the comment period for its environmental assessment did not begin until 7/18/2024.
In this situation, there are many uncertainties… will they receive a conditional commitment? If Rivian receives a conditional commitment, will the market react positively and will it be announced prior to the Presidential Election (11/5) and earnings (11/7 after market close)? Will there be another negative catalyst prior to any announcement, such as a negative turn from their recent announcement for a planned joint venture with Volkswagen?
All in all, it is a very unique catalyst, especially given the current business dynamics of Rivian and its late stage status in the process. I have not seen much analysis or coverage from this angle.
To keep track of this, follow news from the DOE LPO’s website here.
Better yet, keep reading this newsletter and recommend it to other people.
The next FinTides logbook will be posted by November 11th. If an interesting catalyst appears before then, a logbook will be posted much earlier.
Until then, be well.