The stock of Rivian’s rises by 50% thanks to $1 billion Volkswagen joint venture plan and investment
The shares of Rivian Automotive Inc. shot up after hours Tuesday, after Volkswagen AG said it will invest $1 billion into the electric vehicle maker, and plans…
By Bill Peters, , Claudia Assis
Shares of Rivian Automotive Inc. skyrocketed about 50% after hours Tuesday as Volkswagen AG said it will invest $1 billion in the electric-vehicle maker, with plans to pour in $4 billion more if a planned EV-focused joint venture between the two companies gets off the ground.
The purchase, and the confirmation of the company’s confidence for Rivian seems to – at least temporarily at least temporarily ease investor worries regarding concerns about the EV manufacturer’s loss of cash.
Volkswagen VOW -0.96 percent VWAPY +0.71 percent will be the Rivian RIVN, +8.63 percent shareholder by securing an $1 billion convertible note subject to regulatory approvals, but not prior to December. 1. German automobile maker said.
An additional $4 billion would follow to support a joint venture focusing on the creation of a “next generation” electrical/electronic architecture, or the systems that underpin the many EV sensors and electronics components used in self-driving, infotainment and other car functions.
Both companies are planning to introduce vehicles that benefit from the technology developed in the joint venture within the second half of this decade. Rivian announced in its announcement. The two companies will continue to operate independently their own businesses, it said.
“Since the earliest days of Rivian, we have been focused on developing highly differentiated technology, and it’s exciting that one of the world’s largest and most respected automotive companies has recognized this,” Rivian Chief Executive RJ Scaringe stated in an announcement.
The partnership will help Rivian’s technology to a wider market, and “is expected to help secure our capital needs for substantial growth,” Scaringe added.
Rivian along with Volkswagen each would own the 50% stake of the venture and, upon an “successful implementation,” Volkswagen will gain access immediately to Rivian’s E/E technologies, which it could use to make its own electric vehicles, Volkswagen said.
The announcement on Tuesday was significant for Rivian in both “a financing perspective, helping to address concerns surrounding the capital markets environment/Rivian’s ability to raise incremental capital” as well from a branding standpoint and confirmation of Rivian’s technology Jordan Levy at Truist Securities wrote in a note.
It was an expression of confidence in Rivian however, it’s unlikely to in resolving the company’s operational issues or “troubling” cash burn rates that are around $1 billion a quarterly, CFRA anaylyst Garrett Nelson said.
“The key question is why VW would make such an investment in a struggling EV maker which could face going-concern risk in the future, but clearly VW sees value from gaining access to Rivian’s vehicle architecture and software,” he added.
The jump of 50% is most likely due to Rivian’s stock’s strong short-term interest, which is about 19% of the floating, according to the analyst.
“We continue to see a high likelihood of Rivian lowering 2024 production and EBITDA guidance,” Nelson stated.
The decision on whether the JV is formally established will depend largely on a thorough review of the technical feasibility of this E/E integration, aswell the regulatory approvals.
“Against this background, a final decision on the establishment of the joint venture has not been made yet,” Volkswagen the 87-year old German company, told Reuters.
If the company is successful, Volkswagen plans to invest more to Irvine, Calif.-based Rivian, its main manufacturing location is located in Normal, Ill., with a total investment of $4 billion over the coming years, based on significant achievements of the JV.
