Rivian's stock surges on $1 billion Volkswagen investment and joint-venture plan

By Bill Peters and Claudia Assis

German automobile maker set to pour in billions more for Rivian's EV know-how

Shares of Rivian Automotive Inc. skyrocketed 35% in premarket trade Wednesday 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 investment, and the vote of confidence it represents for Rivian, seemed to - at least for the moment - assuage investor concerns about the EV maker's cash burn.

Volkswagen (XE:VOW3) (VWAPY) will become a Rivian (RIVN) shareholder through a $1 billion convertible note, pending regulatory approvals but not before Dec. 1, the German car company said.

Also read: VW shares slip on plan to spend up to $5 billion in Rivian deal

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 aim to launch vehicles benefiting from the technology created within the joint venture in the second half of the decade, Rivian said in its statement. Each company will continue to separately operate their respective businesses, it added.

"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 said in a statement.

The partnership will bring Rivian's technology to a broader market and also "is expected to help secure our capital needs for substantial growth," Scaringe said.

Rivian and Volkswagen each would hold a 50% stake in the joint venture, and after a "successful implementation," Volkswagen would receive immediate access to Rivian's E/E technology, which it would use in its own EVs, Volkswagen said.

Tuesday's announcement was important for Rivian both from "a financing perspective, helping to address concerns surrounding the capital markets environment/Rivian's ability to raise incremental capital" and from a branding perspective and validation of Rivian's technology, Jordan Levy at Truist Securities said in a note.

The announcement was indeed a vote of confidence in Rivian, but it is unlikely to do much to change the company's operating issues and "troubling" cash burn rates of about $1 billion a quarter, 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 said.

The 50% stock jump is likely attributable to Rivian's stock's high short interest, of around 19% of the float, the analyst said.

"We continue to see a high likelihood of Rivian lowering 2024 production and EBITDA guidance," Nelson said.

Whether the JV is established depends mostly on a review of the technical feasibility of that E/E integration, as well as 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, said.

If it's successfully established, Volkswagen plans to invest further in Irvine, Calif.-based Rivian, whose chief manufacturing site is in Normal, Ill., reaching a total of an additional $4 billion in the next couple of years and contingent upon milestone achievements by the JV.

-Bill Peters -Claudia Assis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-26-24 0521ET

Copyright (c) 2024 Dow Jones & Company, Inc.