Volkswagen's $5B investment in Rivian lifts EV maker's stock

Volkswagen's $5 billion investment in Rivian has significantly boosted the EV maker's stock prices. This infusion of capital underscores Volkswagen's strategic move into the electric vehicle sector while enhancing Rivian's financial standing and market perception. The investment is expected to fuel Rivian's growth and development, potentially accelerating its production capacity and technological advancements in the competitive electric vehicle market.

A Volkswagen logo is seen on a Volkswagen ID.5 electric car on display at a showroom of a car dealer in Reze near Nantes, France, November 13, 2023. REUTERS/Stephane Mahe/File Photo Purchase Licensing Rights

Boston Brand Media brings you the latest news - In San Francisco on June 25, Reuters reported that Volkswagen Group (VOWG_p.DE) plans to invest up to $5 billion in Rivian (RIVN.O), a U.S.-based electric vehicle manufacturer. This investment forms a new joint venture where both companies will equally contribute and collaborate on electric vehicle architecture and software. Following the announcement on Tuesday, Rivian's shares soared approximately 50% in after-hours trading, potentially increasing the company's market valuation by nearly $6 billion, pending sustained gains into Wednesday.

The automotive sector is at a pivotal juncture, with electric vehicle startups contending with reduced demand due to high interest rates and financial constraints, while traditional automakers face challenges in producing battery-powered vehicles and advanced software. According to Reuters, Rivian CEO RJ Scaringe highlighted that Volkswagen's investment will provide crucial funding for developing its more affordable R2 SUVs, scheduled for release in early 2026, and its upcoming R3 crossover models. Additionally, the partnership aims to streamline operational expenses by capitalizing on increased supply volumes of components like chips.

The investment from Volkswagen will additionally assist Rivian in achieving positive cash flow, leveraging its popular R1S SUVs and R1T pickups. Rivian plans to license its current intellectual property to the joint venture, with the R2 SUV being the first vehicle to utilize software from this collaboration. Volkswagen's Audi, Porsche, Lamborghini, and Bentley brands will subsequently integrate this technology. Vitaly Golomb, managing partner at Mavka Capital and a Rivian investor, emphasized the significant impact of Volkswagen's support, enhancing Rivian's market position in Europe and potentially Asia in the future.

Boston Brand Media also found that analysts and investors view Volkswagen's investment in Rivian as a strategic move to address its software challenges, particularly with its Cariad division, established during former VW Group CEO Herbert Diess's tenure. Cariad has faced budget overruns and goal shortcomings, factors that contributed to Diess's departure in September 2022.

Volkswagen's commitment includes an immediate $1 billion investment in Rivian through a convertible note set to convert to stock by December 1, pending regulatory approvals. Additionally, Volkswagen plans to make a $1 billion payment upon the establishment of the joint venture, anticipated in the fourth quarter of this year.

The German automaker will further invest $2 billion in Rivian's stock, with $1 billion allocated for each of 2025 and 2026, contingent upon the startup achieving specified milestones. Additionally, Volkswagen plans to extend a $1 billion loan to Rivian in 2026.

COST CUTS

Despite losing nearly $40,000 per vehicle delivered, Rivian has managed to maintain a more stable position compared to other electric vehicle startups. Some of these competitors have resorted to price cuts or bankruptcy, such as Fisker earlier this month.

Rivian has been cutting costs aggressively while striving to meet its EV delivery deadlines. Additionally, it has been renegotiating contracts with suppliers and bringing some manufacturing in-house to stay financially afloat.

According to Scaringe's statement to Reuters last week, the company has completely revamped its manufacturing process, resulting in a significant decrease in material costs.

In the first quarter, Rivian's cash and short-term investments dropped by approximately $1.5 billion to just under $8 billion. Even before the VW deal, Rivian had expressed confidence in its capital sufficiency for launching the R2 SUVs.

"They were definitely in need of additional support to carry them through the R2s launch. This certainly helps extend their financial runway," commented Sam Fiorani, vice president at AutoForecast Solutions.

Rivian's stock has plummeted by half this year. Market speculation indicates significant short-selling activity, with around 18% of its shares recently being sold short, according to data from S3 Partners.

LEGACY

Earlier this year, Volkswagen reaffirmed its commitment to introducing 25 electric vehicle models across its group brands in North America by 2030, despite acknowledging a slowdown in segment growth. The company's shares have declined approximately 3% year-to-date.

According to Golomb from Mavka Capital, Volkswagen has not been a major player in the large SUV and pickup segments in the U.S., and its crossover electric SUV ID4 has not made significant headway. However, the partnership with Rivian provides Volkswagen with new opportunities.

Volkswagen announced on Tuesday that Rivian's software will also be utilized by its off-road EV brand Scout. Scout is establishing a plant in South Carolina aimed at assembling pickups and SUVs to compete directly with Rivian. The plant is scheduled to commence operations in late 2026.

VW's Cariad division has faced ongoing challenges. Analysts point out that integrating various components from legacy systems supplied by different vendors has complicated matters. Issues at Cariad have led to delays in developing crucial new vehicle models like the Porsche e-Macan and Audi Q6 e-tron.

Despite these challenges, Volkswagen has introduced a new software architecture. However, vehicles utilizing this technology are not expected to reach the market until 2028.

Nevertheless, Volkswagen has emphasized that Cariad will play a pivotal role in expanding the scale of software used across its brands.

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Source: Reuters‍