(Bloomberg) – Rivian Automotive Inc. will get a much-needed cash infusion through a new partnership with Volkswagen AG as automakers big and small rethink their strategies in a sluggish electric vehicle market.
Most Read from Bloomberg
The company announced plans for a joint venture backed by an initial $1 billion investment from VW in Rivian and up to $4 billion over time. In exchange, VW will get access to the startup’s technology for use in its own EVs and partners to develop “next-generation” battery vehicles and software.
Rivian shares jumped more than 50% in extended trading after Tuesday’s announcement, recapturing half of the stock’s losses so far.
The surprise tie-up provides a financial lifeline to EV makers after struggling to ramp up production and deliveries of electric pickup models and SUVs. Rivian in March paused plans to build a new manufacturing plant in Georgia to save cash while contending with deep losses, which amounted to approximately $39,000 for each vehicle built last quarter.
The move comes as the wider auto industry backs off amid an unexpected slowdown for electric vehicles. Ford Motor Co. is cutting spending on EVs by $12 billion and delaying new battery-powered models and factories, while General Motors Co. recently admitted it will take “a decade” for the EV market to develop. The reluctance of mainstream buyers to embrace the electric age has left pure EV makers like Rivian on the ropes. Even market leader Tesla Inc. faced with disappointing sales and declining profits.
“The cost of continuing to operate on its own is very high and investors are less enthusiastic about EV companies than when Rivian started,” said Erik Gordon, a clinical professor at the Ross School of Business at the University of Michigan.
The new venture will be “controlled and owned” by VW and Rivian, the companies said in a joint statement.
Volkswagen plans to take an initial $1 billion stake in Rivian through unsecured convertible notes that will exchange for Rivian stock on or after Dec. 1. Amazon.com Inc. from close 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 intends to put $2 billion into the joint venture through payments at the start and loans available in 2026.
The agreement structure looks good for Rivian. While investors have the potential to cede some control to VW, if Rivian shares can appreciate from current levels, there will be less equity dilution in the stomach and VW will own a smaller percentage of the company after acquiring the shares.
In a phone call after the announcement, Rivian Chief Executive RJ Scaringe said VW’s support will help Rivian move forward with plans to build a new factory in Georgia. Rivian remains contractually bound to invest $5 billion in Georgia projects by the end of the decade.
Garrett Nelson, analyst at CFRA Research, said the announcement is “a vote of confidence in Rivian” but “does little” to change the company’s operating problems and cash burn.
Rivian goes public in November 2021 at the height of enthusiasm for the rapid arrival of EVs, which are seen as a potential competitor to Tesla. An early rise in Rivian’s stock briefly gave it market value beyond Ford and GM. But since then, many EV startups have fallen by the wayside as mainstream car buyers reject their expensive models.
As for VW, the German automotive giant gained access to Rivian’s EV software and architecture after years of struggling to launch a plug-in vehicle with the same efficiency and functionality as Tesla.
Rivian has been experimenting with partnerships with established automakers. In November 2021, they rejected plans to develop EVs together with Ford, an early investor. And in December 2022, he rejected a deal to make an electric van with Mercedes-Benz.
–With assistance from Ed Ludlow.
Most Read from Bloomberg Businessweek
© 2024 Bloomberg LP