Rivian Automotive is to receive a significant financial boost from Volkswagen through a fresh collaboration as global car manufacturers, both mainstream and niche, reassess their game plans amidst a deteriorating electric-van market. The two corporations unveiled a combined venture backed up by an opening $1 billion funding from VW into Rivian, with the potential for a further $4 billion over time. In return, VW will leverage the startup’s technology for its own electric vehicles and gain a collaborator to create “next-generation” electric and software-powered vehicles.
On the announcement’s tailwind, Rivian stocks surged by over 50%, offsetting approximately half of the yearly stock losses. This unanticipated alliance offers Rivian a fiscal safety net as it grapples with production and delivery issues for its electric SKUs and pickup designs. In March, to save money and tackle deep deficits, Rivian backed off plans to set up a new production facility in Georgia, after incurring a loss of around $39,000 on each vehicle manufactured last quarter.
The strategy adjustment comes amid a surprising slump in electric vehicle demand across the general automobile sector. Ford is cutting back its expenditure on EVs by $12 billion and postponing the launch of new EV models and manufacturing plants. General Motors also recently recognised that it will require “decades” for the EV industry to mature. The lukewarm reception of electric vehicles by the general public has put pure-play EV manufacturers like Rivian under pressure, with even industry frontrunner Tesla facing dwindling sales and narrowing profit margins.
“The expense of going solo is prohibitive and there’s less investor enthusiasm in EV businesses than when Rivian first appeared,” noted Erik Gordon, a practising professor at the Ross School of Business at the University of Michigan.
According to a joint declaration by the companies, the novel joint venture will be “co-owned and jointly governed” by VW and Rivian. The initial equity investment of $1 billion into Rivian from Volkswagen will be through an open-ended convertible note, which will be converted into Rivian stocks on or post December 1st. As of Tuesday’s close, Amazon.com was Rivian’s largest shareholder, holding a 16% stake valued at almost $2 billion.
VW’s plan includes injecting another $2 billion into Rivian through two equal tranches in 2025 and 2026. Additionally, the German carmaker plans to contribute $2 billion into the venture via an upfront payment and a loan available in 2026.
The deal structure is perceived as advantageous for Rivian, despite investors possibly surrendering a degree of control to VW. There is an opportunity for less equity dilution if Rivian’s shares surge, resulting in VW owning a smaller share of the company post-acquisition.
Rivian’s CEO, RJ Scaringe, confirmed in a post-announcement call that the backing from VW will significantly aid Rivian’s plans to construct a new factory in Georgia. Rivian has made a commitment to invest $5 billion in the Georgia project by the decade’s end.
Despite CFRA Research analyst Garrett Nelson endorsing the announcement as a mark of trust in Rivian, he emphasised that it has minimal impact on Rivian’s operational concerns and expenditure issues.
Rivian went public in November 2021, amidst the peak of anticipation for the swift inception of the electric vehicles (EV) era, rivalling Tesla. An initial increase in Rivian’s stocks briefly pushed its market value higher than Ford and GM. However, with consumers shying away from expensive models, several EV startups have since stumbled.
For VW, the German car manufacturing titan, the venture offers invaluable access to Rivian’s software and EV framework, following their lengthy struggle to launch efficient and functional electric plug-in vehicles comparable to Tesla’s.
Rivian has sought collaboration with existing car manufacturers previously. In November 2021, it retracted plans for joint EV development with Ford, an early investor. The manufacturing of electric vans with Mercedes-Benz was also put on hold in December 2022, marking another failed partnership.