Rivian shares (RIVN) jumped on Wednesday after the electric vehicle maker announced a joint venture deal with Volkswagen (VWAGY), crucially bringing new capital into Rivian’s coffers.
Volkswagen has announced plans to work with Rivian to create “next-generation software-defined vehicle (SDV) architectures” that will be used in both companies’ future electric vehicles. The joint venture will use Rivian’s “zonal hardware design” and platform as the basis for future vehicles, as well as Rivian’s expertise in electrical architecture for vehicles. Rivian will license its existing intellectual property rights to the joint venture.
In exchange, Volkswagen will invest an initial $4 billion in Rivian through an “unsecured convertible security that will convert into Rivian common stock,” with up to $4 billion in additional investments phased through 2026 for a total injection of 5 billion dollars.
Shares of Irving, Calif.-based Rivian closed up 23.2% on Wednesday.
“This partnership fits perfectly with our current software strategy, products and partnerships. We are strengthening our technological profile and our competitiveness,” said Oliver Blume, CEO of the Volkswagen Group, in a statement.
“Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership is also expected to help secure our capital requirements for substantial growth” , Rivian CEO RJ Scaringe said in the release.
That’s exciting! Oliver Blume, CEO of the Volkswagen Group, and I are delighted to announce the creation of a joint venture between our two companies. This partnership brings Rivian’s zonal software and electronics platform to a broader market thanks to the Volkswagen Group’s global reach and… pic.twitter.com/11XVNUo89J
– RJ Scaringe (@RJScaringe) June 25, 2024
For Rivian, news of the new capital infusion eases concerns about the company’s runway as it prepares for the release of its next-generation vehicles, the R2 and R3 mainstream SUVs. As for its cash cushion, Rivian said it had $5.98 billion at the end of the first quarter, up from $7.86 billion at the end of the fourth quarter.
“This news is very positive for RIVN, as the agreement is expected to provide the company with access to capital not only to finance the ramp-up of R2 production at its Normal, Illinois plant, but also to build a new factory in Georgia for its mid-size vehicle platform,” Bank of America analyst John Murphy wrote in a note to clients Wednesday. “We assumed that RIVN would need to raise more capital, and VW’s investments in RIVN will prove valuable in helping it achieve the scale needed to achieve positive free cash flow. »
Murphy also highlighted the potential benefits of cost savings and operational efficiencies under the joint venture agreement, which could ultimately lead to higher gross margins.
Separately, Scaringe told Reuters yesterday that Rivian was improving its cost structure and simplifying production at its Normal, Illinois, factory, including modernizing its factory equipment.
Pras Subramanian is a reporter for Yahoo Finance covering the automotive industry. You can follow him on Twitter and on Instagram.
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