Volkswagen throws Rivian a $5bn lifeline with new joint venture

Rivian Automotive will get a much-needed cash infusion through a new partnership with Volkswagen as carmakers large and small rethink their strategies in a slowing electric-vehicle market.

The companies announced plans for a joint venture supported by an initial $1 billion investment from VW in Rivian and up to $4 billion more over time. In exchange, VW will get access to the startup’s technology for use in its own EVs and a partner to develop “next-generation” battery-powered vehicles and software.

Rivian’s shares soared more than 50 per cent in extended trading after Tuesday’s announcement, recapturing about half of the stock’s year-to-date losses.

The surprise tie-up provides the EV maker with a financial lifeline after it has struggled to ramp up production and deliveries of its electric pickup and SUV models. Rivian in March paused plans to build a new manufacturing plant in Georgia to conserve cash while contending with deep losses, which amounted to roughly $39,000 for each vehicle built last quarter.

The move comes as the broader auto industry retrenches amid an unexpected slowdown in demand for electric vehicles. Ford is cutting spending on EVs by $12 billion and delaying new battery-powered models and factories, while General Motors recently acknowledged it will take “decades” for the EV market to develop. Mainstream buyers’ reluctance to embrace the electric age has left pure-play EV makers like Rivian on the ropes. Even market leader Tesla is facing disappointing sales and shrinking profit margins.

“The cost of continuing to go it alone is too high and investors are less keen on EV companies than 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 take the initial $1 billion equity stake in Rivian through an unsecured convertible note that will exchange into Rivian shares on or after December 1st. Amazon.com is Rivian’s largest shareholder with a 16 per cent stake valued at nearly $2 billion as of Tuesday’s close.

The pact then calls for VW to invest an additional $2 billion in Rivian shares via two equal tranches in 2025 and 2026. The German automaker also intends to put $2 billion into the joint venture through a payment at its inception and a loan available in 2026.

The structure of the agreement looks favorable to Rivian. While investors will potentially cede some control to VW, if Rivian shares were to appreciate from current levels, there would be less equity dilution to stomach and VW would end up owning a smaller percentage of the company after it obtains shares.

On a call following the announcement, Rivian chief executive RJ Scaringe said that VW’s support will help Rivian move forward with plans to build the new plant in Georgia. Rivian remains contractually bound 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 operating issues and cash burn.

Rivian went public in November 2021 at the peak of enthusiasm for the speedy arrival of the EV future, seen as a potentially formidable competitor to Tesla. An early rise in Rivian shares briefly gave it a market value exceeding that of Ford and GM. But since then, many EV startups have fallen by the wayside as mainstream car buyers turned away from pricey models.

For VW, the German automotive giant gets access to Rivian’s software and EV architecture after years of struggling to roll out plug-in vehicles with efficiency and functionality on par with those from Tesla.

Rivian has attempted partnerships with established carmakers in the past. In November 2021, it abandoned plans to jointly develop EVs with Ford, an early investor. And in December 2022, it shelved a deal to build electric vans with Mercedes-Benz. – Bloomberg