(Bloomberg) — Rivian Automotive Inc. will get a much-needed cash injection from a new partnership with Volkswagen AG as automakers large and small rethink their strategies in a slowing electric-vehicle market.
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The companies announced plans to create a joint venture backed by an initial $1 billion investment from VW in Rivian and up to $4 billion more over time. In exchange, VW will have access to the startup’s technology for use in its own electric vehicles and a partner to develop “next generation” battery-powered vehicles and software.
Shares of Rivian soared more than 50% in extended trading after Tuesday’s announcement, recouping about half of the stock’s year-to-date losses.
The surprise tie-up offers the electric vehicle maker a financial lifeline after it struggled to increase production and deliveries of its electric pickup and SUV models. Rivian in March suspended plans to build a new manufacturing plant in Georgia to save cash while facing heavy losses, which amounted to about $39,000 for each vehicle built last quarter.
The move comes as the entire auto industry is contracting due to an unexpected slowdown in demand for electric vehicles. Ford Motor Co. is cutting its spending on electric vehicles by $12 billion and delaying the arrival of new battery-powered models and plants, while General Motors Co. recently acknowledged it would take “decades” for the electric vehicle market is growing. The reluctance of mainstream buyers to embrace the electric era has left pure electric vehicle makers like Rivian on the ropes. Even market leader Tesla Inc. is facing disappointing sales and declining profit margins.
“The cost of continuing to go it alone is too high and investors are less interested in electric vehicle companies than when Rivian started,” said Erik Gordon, a clinical professor at the Ross School of Business at the University of Texas. Michigan.
The new venture will be “equally controlled and owned” by VW and Rivian, the companies said in a joint statement.
Volkswagen plans to take the initial $1 billion stake in Rivian through an unsecured convertible security that will be exchanged for Rivian shares starting December 1. Amazon.com Inc. is Rivian’s largest shareholder with a 16% stake valued at nearly $2 billion. closing date on Tuesday.
The agreement then calls for VW to invest an additional $2 billion in Rivian shares in two equal tranches in 2025 and 2026. The German automaker also intends to invest $2 billion in the joint venture via a payment upon its inception and a loan available in 2026.
The structure of the deal appears favorable to Rivian. Even though investors will potentially cede some control to VW, if Rivian shares were to appreciate from current levels, there would be less equity dilution to bear and VW would end up owning a smaller percentage of the company after obtaining shares.
In a phone call following the announcement, Rivian CEO RJ Scaringe said VW’s support would help Rivian move forward with its plans to build the new factory in Georgia. Rivian remains contractually obligated to invest $5 billion in the Georgia project by the end of the decade.
Garrett Nelson, an analyst at CFRA Research, said the announcement is a “vote of confidence in Rivian” but “does little” to change the company’s operational problems and cash burn.
Rivian went public in November 2021 at the height of excitement over the rapid arrival of the future EV, seen as a potentially formidable competitor to Tesla. An early rise in Rivian’s shares briefly gave it a higher market value than Ford and GM. But since then, many electric vehicle startups have fallen by the wayside as mainstream car buyers turn away from expensive models.
For VW, the German auto giant gains access to Rivian’s software and EV architecture after years of struggling to deploy plug-in vehicles with Tesla-like efficiency and functionality.
Rivian has dabbled in partnerships with established automakers in the past. In November 2021, it scrapped plans to co-develop electric vehicles with Ford, an early investor. And in December 2022, it shelved a deal to build electric vans with Mercedes-Benz.
–With help from Ed Ludlow.
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