Finance
Rivian shares are rising as Volkswagen says it will invest up to $5 billion in a new joint venture
Shares of Rivian (RIVN) rose on Wednesday after the EV maker announced a joint venture deal with Volkswagen (VWAGY), injecting new capital into Rivian’s coffers.
Volkswagen has announced that it plans to work with Rivian to create “next-generation software-defined vehicle architectures (SDV)” that could be used in both companies’ future EVs. The joint venture will leverage Rivian’s zonal hardware design and platform as the basis for future vehicles, as well as Rivian’s expertise in electrical architecture for the vehicles. Rivian will license its existing IP rights to the joint venture.
In return, Volkswagen will invest an initial $1 billion in Rivian through an “unsecured convertible bond that will be converted into Rivian common stock,” with up to $4 billion in additional investments through 2026 for a total infusion of $5 billion.
Shares of Rivian, based in Irving, California, closed 23.2% higher on Wednesday.
“The partnership fits seamlessly with our existing software strategy, products and partnerships. We are strengthening our technology profile and competitiveness,” Oliver Blume, CEO of Volkswagen Group, said in a statement.
“Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through the Volkswagen Group’s global reach, but this partnership is also expected to help secure our capital needs for substantial growth,” said Rivian CEO RJ Scaringe in the position.
This is exciting! Volkswagen Group CEO Oliver Blume and I are pleased to announce the formation of a joint venture between our two companies. This partnership brings Rivian’s software and zonal electronics platform to a broader market thanks to the global reach of the Volkswagen Group and… pic.twitter.com/11XVNUo89J
— RJ Scaringe (@RJSceringe) June 25, 2024
For Rivian, the news of fresh capital eases concerns about the company’s runway while providing a bridge to the release of its next-generation vehicles, the R2 and R3 mass-market SUVs. In terms of cash buffer, Rivian said it had $5.98 billion at the end of the first quarter, compared to $7.86 billion at the end of the fourth quarter.
“This news is meaningfully positive for RIVN, as the agreement should give the company access to capital to finance not only ramping up production of the R2 at its Normal, IL facility, but also a new factory in Georgia to build for its midseason. -size vehicle platform,” Bank of America analyst John Murphy wrote in a note to clients on Wednesday. “We have assumed that RIVN would need to raise more capital, and VW’s investments in RIVN will prove valuable in achieving the scale necessary to achieve positive free cash flow.”
Murphy also noted potential benefits of cost savings and operational efficiencies in the joint venture agreement, which could ultimately lead to higher gross margins.
In addition, Scaringe told Reuters yesterday that Rivian was improving its cost structure and would simplify production at its factory in Normal, Illinois, including through upgrades to its factory equipment.
Pras Subramanian is a reporter for Yahoo Finance covering the auto industry. You can follow him Tweet and further Instagram.
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