(Bloomberg) — Rivian Automotive Inc. will get a much-needed cash injection through a new partnership with Volkswagen AG, as automakers big and small rethink their strategies in a slowing electric vehicle market.
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The companies announced plans for a joint venture, backed by an initial $1 billion investment from VW in Rivian and up to $4 billion more over time. In return, VW will get access to the startup’s technology for use in its own electric cars and a partner to develop next-generation battery-powered vehicles and software.
Rivian shares rose more than 50% in extended trading after Tuesday’s announcement, recouping about half of the stock’s losses so far this year.
The surprise partnership offers the EV maker a financial lifeline after the company has struggled to ramp up production and deliveries of its electric pickup and SUV models. Rivian in March halted plans to build a new factory in Georgia to save money while dealing with large losses, which amounted to about $39,000 for each vehicle built last quarter.
The move comes as the broader auto industry makes cuts amid an unexpected slowdown in demand for electric vehicles. Ford Motor Co. is cutting electric vehicles by $12 billion and delaying new battery-powered models and factories, while General Motors Co. recently acknowledged that it will take “decades” for the EV market to develop. Mainstream buyers’ reluctance to embrace the electric age has left pure EV makers like Rivian in hot water. Even market leader Tesla Inc. is dealing with disappointing sales and shrinking profit margins.
“The costs of going it alone are too high and investors are less enthusiastic about EV companies than they were when Rivian started,” said Erik Gordon, clinical professor at the University of Michigan’s Ross School of Business.
The new venture will be “equally controlled and owned” by VW and Rivian, the companies said in a joint statement.
Volkswagen plans to acquire its initial $1 billion equity stake in Rivian through an unsecured convertible note that will convert into Rivian shares on or after December 1. Amazon.com Inc. is Rivian’s largest shareholder with a 16% stake valued at nearly $2 billion. closed from Tuesday.
The pact then calls for VW to invest an additional $2 billion in Rivian shares through two equal tranches in 2025 and 2026. The German automaker also plans to inject $2 billion into the joint venture through an incorporation payment and a loan that will become available in 2026.
The structure of the agreement appears favorable to Rivian. While investors may cede some control to VW, if Rivian shares were to rise from current levels, there would be less stock dilution and VW would ultimately own a smaller percentage of the company after acquiring shares.
In a phone call after the announcement, Rivian CEO RJ Scaringe said VW’s support will help Rivian move forward with plans to build the new plant in Georgia. Rivian remains contractually committed to investing $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 enthusiasm for the rapid arrival of the EV future, and was seen as a potentially formidable competitor to Tesla. An early surge in Rivian stock briefly gave it a market value greater than that of Ford and GM. But since then, many EV startups have fallen by the wayside as mainstream car buyers turned away from expensive models.
For VW, the German auto giant is getting access to Rivian’s software and EV architecture after years of struggling to roll out plug-in vehicles with efficiency and functionality comparable to Tesla’s.
Rivian has tried to form partnerships with established automakers in the past. In November 2021, it abandoned plans to develop electric vehicles with Ford, an early investor. And in December 2022, it shelved a deal to build electric vans with Mercedes-Benz.
–With assistance from Ed Ludlow.
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