Rivian Automotive Inc. will get a much-needed cash infusion through a new partnership with Volkswagen AG as automakers big and small rethink their strategies in the slowing electric vehicle market.
The two companies announced plans to form a joint venture, with Volkswagen making an initial investment of $1 billion in Rivian, with additional investments of up to $4 billion to follow. In exchange, Volkswagen will gain access to the startup’s technology for its own electric vehicles and partners to develop “next generation” battery-powered vehicles and software.
Rivian shares soared more than 50% in after-hours trading following Tuesday’s announcement, recouping about half of the stock’s year-to-date losses.
The unexpected tie-up provides a financial lifeline to the electric vehicle maker, which has been struggling to increase production and deliveries of its electric pickup and SUV models. Rivian suspended plans to build a new manufacturing plant in Georgia in March to conserve cash while dealing with deep losses, which amounted to about $39,000 per vehicle produced last quarter.
Electric vehicle liquidation
The move comes as the entire auto industry retrenches due to an unexpected slowdown in demand for electric vehicles. Ford is cutting $12 billion in spending on electric vehicles and delaying the rollout of new battery-powered models and factories, while General Motors recently acknowledged that the EV market will take “decades” to develop. Mainstream buyers’ reluctance to embrace the electric era has put all-electric carmakers like Rivian in a difficult position. Even market leader Tesla Inc. is facing disappointing sales and declining profit margins.
Erik Gordon, a clinical professor at the University of Michigan’s Ross School of Business, said: “The cost of continuing to go it alone is too high, and investors are not as enthusiastic about electric vehicle companies as they were when Rivian started.”
The new joint venture will be “equally controlled and owned” by Volkswagen and Rivian, the companies said in a joint statement.
Volkswagen plans to purchase an initial $1 billion of Rivian equity through unsecured convertible notes, which will be converted into Rivian stock on or after December 1. $2 billion.
The agreement then requires Volkswagen to invest an additional $2 billion in Rivian stock through two equal investments in 2025 and 2026. Investment of US$2 billion.
The structure of the agreement appears to be favorable to Rivian. While investors may relinquish some control to VW, if Rivian shares appreciate from current levels, dilution will be reduced and VW will end up owning a smaller percentage of the company after acquiring the shares.
Rivian CEO RJ Scaringe said on a conference call after the announcement that Volkswagen’s support would help Rivian move forward with plans to build a new factory in Georgia. Rivian is still under contract to invest $5 billion in Georgia projects by the end of this century.
CFRA Research analyst Garrett Nelson said the announcement was “a vote of confidence in Rivian” but would do “little” to change the company’s operational problems and cash burn.
Rivian went on sale in November 2021, at the height of enthusiasm for the rapidly approaching future of electric vehicles, and was seen as a potentially formidable rival to Tesla. The early gains in Rivian’s stock price gave it a market value greater than that of Ford and General Motors at one point. But since then, many EV startups have fallen by the wayside as mainstream car buyers turn away from expensive models.
For VW, the German auto giant gets Rivian’s software and electric vehicle architecture after years of trying to launch plug-in cars with efficiency and features comparable to Tesla’s.
Rivian has tried to forge partnerships with established automakers in the past. In November 2021, it abandoned plans to jointly develop electric vehicles with early investor Ford. In December 2022, it shelved a deal with Mercedes-Benz to produce electric vans.
