There has been speculation for months Rivaans (RIVN) needed a partner and a much-needed cash injection to keep the activities alive. The EV startup put the rumors to rest late Tuesday and announced a joint venture Volkswagen (VWAGY), with plans for the global auto giant to invest $5 billion in Rivian.
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Investors greeted the Rivian-Volkswagen partnership with enthusiasm as RIVN shares soared more than 20% on Wednesday, albeit following overnight gains of 50% or more. However, questions remain about Rivian’s cash burn as attention shifts to how Rivian and Volkswagen will operate their joint venture.
“We believe the opportunities ahead are significant,” Rivian CEO RJ Scaringe said during an investor call on Tuesday.
“The joint venture is expected to develop a software-defined vehicle architecture capable of addressing all segments, from entry-level to the most premium and high-performance vehicles,” he added.
Is the deal a game changer for Rivian?
On Wednesday, longtime Wedbush Securities analyst Dan Ives said Tesla (TSLA) bull raised his price target on Rivian stock from 15 to 20, maintaining an outperform rating on the stock.
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 that the focus is still on how Rivian can execute on product execution and optimization and make progress on profitability.
The value for VW
Adam Jonas, Morgan Stanley’s high-profile auto analyst, wrote Wednesday that Rivian’s business is expected to consume about $8 billion through 2027. This does not yet include any impact of the joint venture.
Jonas added that the VW partnership is a “relatively efficient form of capital raising considering other alternatives.”
“Anyone could have given money, but we believe VW can potentially place much more value on what Rivian has to offer,” Jonas wrote, adding that VW has scale and production capabilities, while Rivian has key software solutions.
“While not a change of control, this mutual need has 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 believe it does little to change the company’s operating woes and troubling cash burn rates, which are around $1 billion per quarter.”
“The key question is why VW would make such an investment in a struggling EV manufacturer that could face business risks in the future,” Nelson said, adding that VW clearly sees value in gaining access to the vehicle architecture and software from Rivian.
Rivian shares: the details of the joint venture
According to Rivian executives, the partnership is intended to focus on software as well as electrical architecture design and development. The joint venture is currently not involved in battery technology, propulsion platforms, high-voltage systems or autonomous driving.
Scaringe said Tuesday that the joint venture is expected to include two co-chief executives. Rivian will appoint the technical leadership and Volkswagen will appoint 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 investment of $1 billion and plans for an additional $4 billion thereafter.
Volkswagen’s initial $1 billion injection will take the form of an unsecured convertible note that will be convertible into Rivian shares. The company will receive the proceeds from the convertible note this week and expects the joint venture to close in the fourth quarter of 2024.
The additional $4 billion will be split into a $2 billion investment in Rivian shares and $2 billion related to the joint venture.
Volkswagen’s $2 billion investment in RIVN shares is expected to be distributed between 2025 and 2026.
Claire McDonough, Rivian’s chief financial officer, said Tuesday that the $1 billion equity investment by 2025 is contingent on Rivian achieving “certain financial milestones.” McDonough added that by 2026, a $1 billion equity investment will be subject to a “technological milestone.”
Apple smoke screen
The announcement comes more than a month after Rivian reported a worse-than-expected first-quarter loss, as the company lost $38,784 per vehicle delivered amid rumors that Apple (AAPL) wanted to collaborate with the EV startup. At the time, Scaringe hinted that Rivian has a “history of partnership,” pointing to the investment of Amazon.com (AMZN).
Scaringe dropped another hint about a possible partnership during a meeting with Morgan Stanley in late May. Scaringe mentioned the VolkswagenXPeng (XPEV) agreement as a “good example for a partnership model.”
On Wednesday, Ives wrote that Rivian and VW have been working “over the past several months” to ensure that 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 car using the R2 platform, and a high-performance R3X offering.
Rivian stock performance
Rivian shares rose 23.2% to 14.74, reaching an intraday high of 16.35 during Wednesday’s market action. RIVN shares rose 8.6% to 11.96 on Tuesday. Scaringe sold 71,429 shares of RIVN stock worth $803,576.25 on Tuesday, according to regulatory filings.
It was the second time Scaringe sold Rivian stock this month, after selling 71,429 shares for a market value of $820,883.50 on June 10.
Before trading on Wednesday, shares of RIVN had fallen 50% in 2024 through Tuesday’s close, falling back below their 200-day high. The stock was trading along its 50-day moving average and began Wednesday about 85% below its IPO price of $78, according to MarketSurge analysis.
Rivian stock ranks ninth in IBD’s Automakers industry group. RIVN has a Composite Rating of 30 out of 99. Furthermore, the stock has a Relative Strength Rating of 18 and the EPS Rating is 30 out of 99.
Follow Kit Norton on X @KitNorton for more coverage.
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