Rivian Stock Rallies After Volkswagen Announces Investment in EV Startup

Rivian (NYSE: RIVN) stock is trading sharply higher in US premarket price action today after Volkswagen announced a $5 billion investment in the cash-guzzling company. Last year, Volkswagen also invested in Chinese EV company Xpeng Motors.

Initially, Volkswagen would invest $1 billion in Rivian and later invest $2 billion to create a jointly-owned software company that would use Rivian’s software and electrical architecture to create a vehicle technology platform. Volkswagen also intends to take another $2 billion stake in Rivian for a total investment of $5 billion. The future equity investments which would be equally spread between 2025 and 2026 would be contingent upon Rivian hitting technical and financial milestones.

The future investments would happen based on the 30-trading day volume weighted average price of RIVN shares before the date of investment. This would mean that if Rivian stock appreciates by then, the company would need to issue fewer shares for the investment which in turn would imply lesser dilution.

Volkswagen to Invest $5 Billion in Rivian

In its release, Rivian said, the partnership “is expected to allow both companies to combine their complementary strengths and lower cost per vehicle by increasing scale and speeding up innovation globally.”

It added, “Rivian’s proven in-market zonal hardware design and integrated technology platform are expected to serve as the foundation for future SDV development in the JV that will be applied to both companies’ vehicles.”

Notably, while Rivian’s vehicles – it currently offers the R1S SUV, R1T pickup truck, and an electric delivery vehicle – have received good reviews from analysts as well as buyers, the company has been struggling with perennial losses and cash burn.

To be sure, almost all startup EV companies are burning cash and need frequent cash infusion to stay afloat. Companies like Fisker and Lordstown Motors that failed to raise cash had to file for bankruptcy.

Volkswagen CEO on the Partnership

In his prepared remarks, Volkswagen’s CEO Oliver Blume said, “Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture. Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost.”

He added, “We are also acting in the best interest of our strong brands, which will inspire with their iconic products. The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness.”

Rivian Is Working on Low-Cost Models

Rivian is working on a low-cost platform and expects to deliver its R2 vehicles in 2026. Previously, the company planned to build R2 at its $5 billion factory in Georgia. It however shelved that plant in May and said it would retool its existing plant in Normal, Illinois in a bid to cut down its cash burn. The investment from Volkswagen would help Rivian ramp up production of the low-cost model in Georgia.

While Rivian lost $39,000 per vehicle in Q1 the company expects to turn gross profit positive later this year.

Volkswagen Also Partnered with Xpeng Motors

Last year, Volkswagen partnered with Xpeng Motors to build two EVs on its platform and also buy a stake in the company for a total consideration of $700 million. The deal was a pathbreaker for not only XPEV but also the Chinese EV ecosystem as it reflected the confidence of the German auto giant in a startup EV company.

The two have since expanded the partnership and are exploring joint sourcing as well as collaboration in international markets.

Xpeng Motors is reaping the financial rewards from the partnership and in his prepared remarks during the Q1 2024 earnings CEO Xiaopeng He said, “Through our strategic partnership with the Volkswagen Group, XPENG is at the forefront of monetizing in-house developed smart technologies as a technology enabler. Our industry-leading technologies are expected to gain greater market influence and yield better financial returns.”

How Would the Partnership with Volkswagen Help Rivian?

First and foremost, the partnership with Volkswagen would help Rivian with the much-needed cash that it needs to fund the ongoing cash burn. Also, as the company’s CFO Claire McDonough said “we anticipate incremental benefits through material cost savings, operating expense efficiencies, and future revenue opportunities associated with the joint venture.”

Analysts on RIVN Stock

Rivian is set to hold its investor day tomorrow where the company might talk more about the Volkswagen partnership. Meanwhile, even ahead of the announcement, analysts started taking note of the steep fall in Rivian share price and yesterday only Guggenheim initiated the stock as a “buy” and assigned a $18 target price.

“We see a credible path to breakeven gross margin in 4Q24, informed by a detailed margin build and encouraging updates surrounding the 2025 model year R1 lineup,” said Guggenheim analysts in a note.

They added, “Our detailed analysis of RIVN’s breakeven glidepath and R2/R3 economic potential leads us to the conclusion that RIVN will emerge from EV winter as a market leader and advise clients to BUY RIVN ahead of anticipated positive 2H inflection in result.”