Volkswagen AG said it would invest $1 billion in Rivian Automotive Inc. after hours on Tuesday. The company makes electric vehicles. Volkswagen AG also said it would invest $4 billion more if their planned joint venture to make electric vehicles works.
The investment and the vote of confidence it shows for Rivian seemed to calm investors’ worries about the EV maker’s cash burn, at least for now.
The German car company Volkswagen VOW, +0.09% VWAPY, +0.71% will become a shareholder in Rivian RIVN, +8.63% through a $1 billion convertible note, as long as the government gives its approval, which won’t happen before December 1.
The next step would be to give an extra $4 billion to a joint venture that would focus on making a “next generation” electrical/electronic architecture. This would include the systems that support the many EV sensors and electronics parts used for self-driving, entertainment, and other car functions.
Rivian said in a statement that both companies plan to release cars in the second half of the decade that use the technology they worked on together. It also said that each company will continue to run its own business independently.
In a statement, Rivian CEO RJ Scaringe said, “Since the beginning of Rivian, we’ve been focused on developing highly differentiated technology. It’s exciting that one of the world’s largest and most respected automotive companies has recognized this.”
The partnership will help Rivian get its technology in front of more people and also “secure our capital needs for substantial growth,” Scaringe said.
One company, Rivian, and another company, Volkswagen, would each have a 50% stake in the joint venture. Volkswagen said that it would use Rivian’s E/E technology in its own electric vehicles after a “successful implementation.”
Jordan Levy at Truist Securities wrote in a note that Tuesday’s announcement was important for Rivian from both a “financing perspective, helping to address concerns surrounding the capital markets environment/Rivian’s ability to raise incremental capital” and a “branding perspective, validating Rivian’s technology.”
The news was a vote of confidence in Rivian, but it probably won’t make a big difference in the company’s problems running its business or its “troubling” cash burn rates of about $1 billion a quarter, according to CFRA analyst Garrett Nelson.
“The main question is why VW would put so much money into an EV company that is having trouble and may not be able to stay in business in the future,” he said. “Clearly VW sees value in getting access to Rivian’s vehicle architecture and software.”
Analysts say that the 50% rise in stock price is likely due to the fact that a lot of people have sold short Rivian’s stock (19% of the float).
Nelson said, “We still think it’s very likely that Rivian will lower its guidance for 2024 production and EBITDA.”
If the JV is formed, it will mostly depend on a review of how technically possible it is to combine the two types of energy and on regulatory approvals.
In light of this, Volkswagen, a German company that has been around for 87 years, said, “a final decision on the establishment of the joint venture has not yet been made.”
Volkswagen wants to put more money into Rivian, which is based in Irvine, California, and whose main factory is in Normal, Illinois. They plan to do this over the next couple of years, up to a total of $4 billion, if the JV meets certain goals.
