Rivian Automotive Inc. won a vote of confidence last week when the Volkswagen Group agreed to invest $5 billion in the company and a new joint venture.
The partnership plans to create software-defined vehicle platforms that use Rivian’s electrical architecture and software technology for both companies’ future lines of electric vehicles.
Shares for the Irvine-based EV maker jumped 23% to $14.74 apiece on the day following the announcement with a market cap of $14 billion (Nasdaq: RIVN). Prior to the June 25 announcement, Rivian’s stock had fallen 57% since a year ago.
“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 also is expected to help secure our capital needs for substantial growth,” Rivian Chief Executive RJ Scaringe said in a statement.
The venture is expected to help both companies as Volkswagen reported a first-quarter 3.3% drop in electric vehicle sales to 136,400, including 24% decline in Europe alone.
It’s also a lifeline for Irvine-based Rivian, which soared to more than $130 a share after it went public in 2021 it hopes that it could rival pacesetter Tesla. Since then, Rivian shares gradually declined as the company burned through a significant amount of cash and in February, forecast production for 2024 that disappointed investors. It also laid off 10% of its estimated 17,000 employee workforce. Tesla CEO Elon Musk earlier this year opined that Rivian may go bankrupt by the end of 2025 if it doesn’t step up production.
“This represents an important announcement for RIVN both from a financing perspective, helping to address concerns surrounding the capital markets environment/RIVN’s ability to raise incremental capital, as well as from a branding perspective in outside validation of RIVN’s integrated software/electrical architecture platform,” Truist Securities analyst Jordan Levy wrote in a note to investors.
The EV Road Map
Volkswagen, the world’s second largest automobile manufacturer, last year delivered 9.2 million vehicles, up 11% from the year before. It has 114 production facilities in 29 countries across the Americas, Europe Asia and Africa with around 684,000 employees. The company has a 54-billion-euro market cap (XETRA: VOW3.DE). In 2023, it sold 771,000 electric vehicles, up 35%.
By contrast, Rivian last year delivered 57,000 vehicles and predicted another 57,000 this year. Thus far this year, it’s delivered almost 27,000 vehicles, according to an investor day held on June 27 (See separate article).
The joint venture, which will be equally controlled and owned, is expected to begin in the fourth quarter of this year. Two executives will lead as co-CEOs with Rivian to appoint the technical leadership and Volkwsagen to appoint the JV’s chief operating officer.
At that point, Volkswagen plans to start utilizing Rivian’s existing technology in the group’s own EV platforms. The companies said that significant work had been done in the last few months “to validate that Rivian’s electrical architecture and software are compatible with Volkswagen Group’s vehicles.”
Rivian’s “hardware design and integrated technology platform” will be used as the foundation of any future development, the companies said citing the technology’s flexibility & scalability. The Irvine automaker also aims to license existing intellectual property rights to the project, which the JV will build off of.
In an investor call following the announcement, Rivian Chief Software Officer Wassym Bensaid shared that the automaker’s recently announced R2 vehicle will be the lead program for the venture while any Volkswagen vehicles that result from the partnership won’t be seen until the second half of the decade.
Bensaid also said that the work to integrate Rivian’s technology into Volkswagen vehicles “are progressing very nicely toward our aligned target.”
Last week, the companies said the collaboration will help them lower the production cost per vehicle while Volkswagen’s global reach will help Rivian target more customers.
“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” Volkswagen Chief Executive Oliver Blume said in a statement. “We are strengthening our technology profile and our competitiveness.”
Investors have criticized Rivian’s costs to make a vehicle; in the first quarter, the company lost almost $39,000 per vehicle.
Cash Needed
While Rivian reported $4.4 billion in revenue in 2023, it also had a loss from operations of $5.8 billion. This year, analysts are expecting revenue to rise 6.6% to $4.7 billion and then jump 39% to $6.6 billion in 2025. The company forecasts its loss from operations will be about $2.7 billion this year.
Its executives had previously said it will have enough cash to fund operations through 2025. It reported $7.9 billion in cash as of March 31, down from $9.4 billion on Dec. 31.
From the planned $5 billion, an initial $1 billion will be given through an unsecured convertible note that will convert into Rivian’s common stock by December with another $2 billion in common stock to be added over the next two years. The remaining $2 billion will be split between a payment at the inception of the JV and a loan available in 2026.
It also allows better visibility into Rivian’s capital road map, Chief Financial Officer Claire McDonough said. She added that the $5 billion is “expected to provide the capital to fund Rivian’s operations” through the ramp of R2 at its factory in Normal, Ill., as well as the midsize platform in Georgia, “enabling Rivian a path to free cash flow positive and meaningful scale.”
Legacy Challenges
Volkswagen’s investment comes at a time of ongoing production ramp-up at Rivian, which announced three new EV models, the R2, R3 and R3X, in March.
The partnership will also help Volkswagen as legacy original equipment manufacturers (OEM) have been facing challenges in developing technology for software-defined vehicles, according to Baird analyst Luke L. Junk.
“I deeply believe this is one of the hardest things for existing manufacturers to do because of the way historically the electronics and software spaces evolved within automotive,” Scaringe told analysts. “I designed the company from the ground up to be incredibly strong and very deep in this space of electronics and software.”
Considering this new partnership with Rivian, Junk sees “both glass half-empty and glass-half full impacts to auto suppliers.”
If more “tie-ups” between legacy OEMs and younger organizations, or Chinese manufacturers, develop, there could be a risk in “how Western automaker cultures and hierarchies mesh with start-up and/or Chinese automaker cultures,” Junk wrote in a note to investors.
On the other hand, the larger manufacturers need help and support in this area of technology which the suppliers can provide. Junk also pointed to an “increased sense of urgency” that will occur among both players no matter what.
“We expect today’s Rivian/VW announcement to ultimately spur additional action in the industry, which should help to address lingering questions around the role of auto suppliers in this transition,” he wrote.
“The additional investment is expected to efficiently strengthen Rivian’s balance sheet,” McDonough Âsaid on the investors call.
Scaringe talks Rivian’s key advantage
Rivian Automotive Inc. laid out its vision for the automotive industry at its first-ever Investor Day on June 27.
The automaker’s key advantage is its ability to build the technology from the ground up, founder and Chief Executive RJ Scaringe told investors.
Rivian’s “ability to design computers, build the software that runs on those computers and then the ability to consolidate the number of computers to a much smaller number” within the vehicle is an example of how the company can control the evolution of its platforms without third parties, Scaringe said.
For example, the in-house engine control units have been reduced from 17 to seven on the R1 models, which simplifies the process of updating its vehicles and creates a flexible platform that can be applied to a wide range of vehicles, he said.
This capability will also introduce “thousands of dollars in cost savings,” Scaringe said.
It’s also a key driver behind Rivian and new investor Volkswagen Group’s planned joint venture to develop the next iteration of this technology that both automakers can use in future electric vehicles.
The company’s 121-page presentation laid out several interesting statistics, such as in the past two and one-half years, the software on each vehicle has been updated with 500 new features from the cloud. 96% of Rivian customers installed a software update within two weeks. The company said 86% of Rivian owners would buy again from the company.
—Emily Santiago-Molina
