Speculation has been swirling for months that Rivian needed a partner and a much needed cash infusion to keep operations alive. The EV startup put the rumors to bed late Tuesday, announcing a joint venture with Volkswagen, with plans for the global auto giant to invest $5 billion in Rivian.
Investors greeted the Rivian-Volkswagen partnership with excitement as RIVN shares skyrocketed more than 20% Wednesday, though off overnight gains of 50% or more. However, questions remain about Rivian's cash burn as attention turns to how Rivian and Volkswagen will execute its joint venture.
"We believe the opportunity ahead is significant," Rivian Chief Executive RJ Scaringe said Tuesday during an investor call.
"The joint venture is expected to develop a software-defined vehicle architecture capable of addressing all segments from entry-level vehicles to the most premium and high-performance vehicles," he added.
Deal A 'Game Changer' For Rivian?
On Wednesday, Wedbush Securities analyst Dan Ives, who is a longtime Tesla bull, raised his price target on Rivian stock to 20 from 15, maintaining an outperform rating on the shares.
Ives wrote that the Volkswagen joint venture is a "game changer" for Rivian.
Ives said that "this is an exciting announcement for us to see." However, he added the focus remains on how Rivian can executive product execution, optimization and make inroads toward profitability.
The Value For VW
Adam Jonas, Morgan Stanley's high-profile autos analyst, wrote Wednesday Rivian operations are expected to consume around $8 billion through 2027. This does not include any impact from the joint venture.
Jonas added that the VW partnership is a "relatively efficient form of capital raising given other alternatives."
"Anyone could have provided money, but we believe VW may potentially value much more what Rivian has to offer," Jonas wrote, adding that VW has scale and manufacturing capabilities while Rivian has key software solutions.
"While not a change of control, this mutual need may have the potential to build a stronger/lasting relationship," he said.
Meanwhile, CFRA analyst Garrett Nelson, who has a sell rating on Rivian, was less optimistic.
Nelson wrote Tuesday that while the announcement is a vote of confidence in Rivian, "we think it does little to change the company's operating issues and troubling cash burn rates, which have been around $1 billion per quarter."
"The key question is why would VW make such an investment in a struggling EV manufacturer that could face going concern risk in the future," Nelson said, adding that VW clearly sees value in gaining access to Rivian's vehicle architecture and software.
Rivian Stock: The Joint Venture Specifics
The partnership is intended to focus on software along with electrical architecture design and development, according to Rivian executives. Currently, the joint venture does not include anything to do with battery technology, propulsion platforms, high-voltage systems or autonomous driving.
Scaringe said Tuesday the joint venture is expected to include two co-chief executives. Rivian will appoint the technical leadership and Volkswagen will name the chief operating officer.
Both Volkswagen and Rivian will continue to independently manage and operate their respective vehicle businesses, according to Scaringe.
The deal is expected to total $5 billion. This includes an initial $1 billion investment and then plans for another $4 billion.
Volkswagen's first $1 billion infusion will take the form of an unsecured convertible note that will be convertible into Rivian equity. The company will receive the proceeds from the convertible note this week and expects the closing of the joint venture to occur in the fourth quarter of 2024.
The additional $4 billion will be broken up into a $2 billion investment into Rivian shares and $2 billion related to the joint venture.
Volkswagen's $2 billion investment into RIVN shares is expected to be split between 2025 and 2026.
Rivian Chief Financial Officer Claire McDonough said Tuesday the 2025 $1 billion equity investment depends on Rivian achieving "certain financial milestones." McDonough added that 2026 $1 billion equity investment will be subject to a "technological milestone."
Apple Smoke Screen
The announcement comes more than one month after Rivian reported a worse-than-expected loss in the first-quarter, as the company lost $38,784 per vehicle delivered, amid rumors that Apple was looking to partner with the EV startup. At the time, Scaringe hinted that Rivian has a "history of partnership," pointing to the investment from Amazon.com.
Scaringe dropped another hint about a possible partnership in late May during a meeting with Morgan Stanley. Scaringe cited the Volkswagen-XPeng agreement as a "good example for a partnership model."
On Wednesday, Ives wrote that Rivian and VW worked "over the past few months" to ensure the EV startup's electrical architecture and software are compatible with Volkswagen's vehicles.
In March, the EV startup unveiled the R2 — its smaller, cheaper, next-generation vehicle and platform.
Rivian expects production of the R2 platform to begin in 2026. The company also announced the R3, a more compact crossover style vehicle that uses the R2 platform, and a high-performance R3X offering.
Rivian Stock Performance
Early on Thursday, RIVN traded down around 2%.
Rivian stock soared 23.2% to 14.74, hitting an intraday high of 16.35, in Wednesday's market action.
RIVN shares on Tuesday jumped 8.6% to 11.96. Scaringe sold 71,429 shares of RIVN on Tuesday, for a value of $803,576.25, according to regulatory filings.
It was Scaringe's second time selling Rivian stock this month, after unloading 71,429 shares for a market value of $820,883.50 on June 10.
Ahead of Wednesday trade, RIVN shares had tumbled 50% in 2024, dropping back below their 200-day. The stock has been trading along its 50-day moving average and started Wednesday about 85% below its IPO price of $78, according to MarketSurge analysis.
Rivian stock ranks eighth in IBD's Automakers industry group. RIVN has a 40 Composite Rating out of 99. Additionally, the stock has a 35 Relative Strength Rating and its EPS Rating is 30 out of 99.
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