Rivian Automotive Inc. experienced a significant surge in its stock price on Wednesday, with shares rallying by 30%. This boost came after Volkswagen AG announced its plans to invest $1 billion in the electric-vehicle manufacturer. Furthermore, Volkswagen expressed its intention to invest an additional $4 billion if the proposed EV-focused joint venture between the two companies materializes.
This investment from Volkswagen not only provides a substantial financial backing for Rivian but also serves as a vote of confidence in the company. It appears to have alleviated investor concerns regarding Rivian’s cash burn, at least temporarily. Pending regulatory approvals, Volkswagen will become a shareholder in Rivian through a $1 billion convertible note. However, this transaction will not occur before December 1, as stated by the German car company.
Moreover, Volkswagen has committed to providing an additional $4 billion to support the joint venture’s focus on developing a “next generation” electrical/electronic architecture. This pertains to the systems that form the foundation of various EV sensors and electronic components used in self-driving technology, infotainment, and other car functions.
Both Rivian and Volkswagen aim to launch vehicles that benefit from the technology developed within the joint venture during the second half of this decade, according to Rivian’s statement. It is important to note that each company will continue to operate independently. Rivian’s Chief Executive, RJ Scaringe, expressed his excitement about the partnership, stating that it is gratifying to have one of the world’s largest and most respected automotive companies recognize Rivian’s highly differentiated technology.
This collaboration with Volkswagen will not only expand the market reach of Rivian’s technology but is also expected to secure the necessary capital for the company’s substantial growth, Scaringe added. In the joint venture, both Rivian and Volkswagen will hold a 50% stake. Once the venture is successfully implemented, Volkswagen will gain immediate access to Rivian’s E/E technology, which it plans to incorporate into its own electric vehicles.
Tuesday’s announcement was significant for Rivian, addressing concerns about capital markets and the company’s ability to raise more capital. This boosted Rivian’s financing perspective and validated their technology and branding, according to Jordan Levy at Truist Securities. However, CFRA analyst Garrett Nelson believes the announcement won’t have a major impact on Rivian’s operational issues and cash burn rates, which are currently at $1 billion per quarter. Nelson questions Volkswagen’s investment in a struggling EV maker facing going-concern risk.
Despite this, Volkswagen sees value in Rivian’s vehicle architecture and software. The recent surge in Rivian’s stock is due to its high short interest, accounting for 19% of the float. Nelson predicts Rivian may lower its 2024 production and EBITDA guidance. The joint venture between Rivian and Volkswagen depends on technical feasibility and regulatory approvals. Volkswagen has not made a final decision on the joint venture. If established, Volkswagen plans to invest an additional $4 billion in Rivian over the next few years, contingent on milestone achievements.
