Rivian Automotive's joint venture deal with German car manufacturer Volkswagen Group marks a significant advancement for the US electric vehicle maker, with transaction terms exceeding prior expectations, as noted by analysts. On Tuesday, the companies announced that Volkswagen will increase its investment to as much as $5.8 billion in Rivian and their new joint venture by 2027, a notable rise from the initial plan for a $5 billion investment.
This collaboration aims to create cutting-edge software-defined vehicle platforms that will underpin their future electric vehicles. The venture, identified as Rivian and VW Group Technology, was anticipated to commence operations on Wednesday. Following the announcement, Rivian's shares experienced a remarkable surge of 17% intraday. Wedbush Securities believes this influx of capital will bolster Rivian's future expansion, allowing the company to integrate its software framework and electric architecture, achieve cost efficiencies, and produce enhanced vehicles.
This partnership is poised to finance Rivian's R2 vehicle ramp-up and manufacturing facility in Georgia, a strategic move for the company's growth as emphasized in a Wednesday client note from Wedbush. "After witnessing considerable turbulence and issues in the supply chain over the last year, we see this as the ideal partner announcement coming at the perfect moment as Rivian seeks to steer through challenging conditions with adequate funding to support its electric vehicle strategy in the years ahead," commented Wedbush analysts led by Daniel Ives.
The firm maintains an outperform rating on Rivian's stock. An initial investment consisting of a $1 billion convertible note has already been executed by Volkswagen. The German automaker will allocate approximately $1.3 billion for background IP licenses and obtain a 50% ownership stake in the venture, which will function as an independent entity.
The residual $3.5 billion is anticipated to arise from equity, convertible notes, and debt, contingent upon the successful meeting of established milestones. "Further investments are linked to explicit operational, technical, and financial milestones," as stated in the companies' joint announcement. RBC Capital Markets remarked that the deal's terms "appear significantly better than some had feared." "Each milestone operates independently, alleviating concerns that Rivian missing an initial milestone would hinder subsequent funding from Volkswagen for future targets," RBC Analyst Tom Narayan expressed in a separate note to clients on Wednesday.
"We consider this arrangement a cost-effective strategy for Volkswagen to fund its software-defined vehicle goals and for Rivian to secure the necessary funding for its R2 launch." RBC maintains a sector perform rating on Rivian's stock. Price: 12.15, Change: +1.57, Percent Change: +14.79.