Volkswagen, the prominent German automaker, has unveiled plans to invest $5 billion in Rivian, a leading U.S. electric vehicle manufacturer. This collaboration aims to establish a joint venture focused on developing shared technology that will benefit both companies, as announced by the companies.
As part of the collaboration, the German company will directly invest $3 billion in Rivian and allocate an additional $2 billion to establish a jointly-owned venture. “to create next-generation electrical architecture and best-in-class software technology,” said both companies.
Despite its technological acclaim, Rivian has faced challenges with financial losses and cash outflows. As part of the deal, Volkswagen plans to invest $1 billion in Rivian in 2024, which will convert into Rivian common stock. This initial investment will be followed by further investments of $1 billion each in 2025 and 2026. The additional $2 billion from Volkswagen will be divided between an initial payment at the inception of the joint venture and a loan scheduled for 2026, according to statements from both companies.
“The transaction as a whole provides a powerful platform for future growth for Rivian,” said Chief Financial Officer Claire McDonough “And it’s not just the $2 billion of JV-related capital. It’s the full $5 billion of capital and the opportunity we have to accelerate our mission.”
Rivian said these two projects are “a path to positive free cash flow and meaningful scale.”
The partnership will enable Volkswagen to utilize Rivian’s current electrical architecture and software strategy, hastening the German company’s progress in developing software-defined vehicles.
Oliver Blume, VW chief Executive said “Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” Oliver stated, “We are strengthening our technology profile and our competitiveness.”
The two companies anticipate finalizing the transaction in the fourth quarter of 2024, pending regulatory approvals. CFRA Research raised its price target for Rivian’s shares but upheld its “sell” recommendation on the company.
“While the announcement is a vote of confidence in Rivian, we think it does little to change the company’s operating issues and troubling cash burn rates, which have been around $1 billion per quarter,” said CFRA’s Garrett Nelson.
“The key question is why would VW make such an investment in a struggling EV manufacturer that could face going concern risk in the future, but clearly VW sees value in gaining access to RIVN’s vehicle architecture and software,” stated Nelson.