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Volkswagen’s $5 billion investment in Rivian boosts the electric vehicle maker’s shares

By Abhirup Roy and Ben Klayman

SAN FRANCISCO (Reuters) – German automaker Volkswagen Group will invest up to $5 billion in U.S. electric vehicle maker Rivian in a new 50/50 joint venture to share electric vehicle architecture and software , the companies announced Tuesday.

Rivian shares jumped about 50% in extended trading after the announcement, potentially adding nearly $6 billion to the company’s market value if gains hold Wednesday.

The auto industry faces a crucial time as electric vehicle startups grapple with slowing demand amid high interest rates and dwindling liquidity, while traditional automakers struggle to build battery-powered vehicles and advanced software.

The investment will provide Rivian with the financing needed to develop its cheaper and smaller R2 SUVs, which are expected to go on sale in early 2026, as well as its planned R3 crossovers, CEO RJ Scaringe told Reuters. Additionally, the partnership will allow Rivian to reduce operating costs by leveraging supply volumes, including chips and components, he said.

It will also help Rivian, known for its flagship R1S SUVs and R1T pickup trucks, turn cash flow positive. The company will license its existing intellectual property to the JV, and the R2 will be the first vehicle using the JV’s software. Volkswagen vehicles, including its Audi, Porsche, Lamborghini and Bentley brands, will follow.

“Any cash injection of this type is huge. Getting support from the Volkswagen Group certainly strengthens its story in Europe and Asia,” said Vitaly Golomb, managing partner of Mavka Capital, a Rivian investor.

For Volkswagen, analysts and investors see the investment as a measure to address the company’s software problems. VW’s software division, Cariad – created under the leadership of former VW Group CEO Herbert Diess – overspent its budget and failed to meet its targets. This contributed to Diess’ departure in September 2022.

Volkswagen will immediately invest $1 billion in Rivian through a security that will convert into shares on December 1, subject to regulatory approvals. Volkswagen will also make a $1 billion payment upon formation of the JV, expected in the fourth quarter of this year.

The German automaker will also invest $2 billion in Rivian shares – $1 billion each in 2025 and 2026 – subject to the startup meeting certain milestones, and provide a $1 billion loan in 2026.

COST REDUCTIONS

Even with losses of nearly $40,000 for each vehicle delivered, Rivian is on steadier footing than other electric vehicle startups that have been forced to cut prices or file for bankruptcy, including Fisker earlier this month -this.

To keep its head above water, Rivian has been cutting costs while working to deliver its electric vehicles on time. It also renegotiated contracts with its suppliers and built certain parts in-house.

The company has overhauled its manufacturing process, which has led to a significant reduction in the cost of materials, Scaringe told Reuters last week.

Rivian’s cash and short-term investments fell by about $1.5 billion in the first quarter to just under $8 billion. Before the VW deal, Rivian said it had enough capital to launch the R2 SUVs.

“They were definitely going to need something to get through the R2 launch. This certainly helps extend that lineup,” said Sam Fiorani, vice president at research firm AutoForecast Solutions.

Rivian stock has fallen by half so far this year. Traders bet heavily that the stock would fall, with an equivalent of 18% of its shares recently sold short, according to data from S3 Partners.

LEGACY

Volkswagen announced earlier this year that it was maintaining plans to launch 25 electric vehicle models in North America by 2030, while acknowledging slowing growth in the segment. The company’s shares have fallen about 3% since the start of the year.

Golomb of Mavka Capital said VW is not a major player in the large SUV and pickup segments in the United States and has failed to break through with its ID4 crossover electric SUV. But the partnership with Rivian gives the company options, he said.

Volkswagen said Tuesday that Rivian software would also be used by Scout, the German automaker’s off-road electric vehicle brand, which is building a factory in South Carolina to assemble pickup trucks and SUVs that would compete with Rivian. The factory is expected to open at the end of 2026.

VW’s Cariad has been struggling for years. Analysts say parts of its existing system come from vendors, making integrating all the pieces complicated. Problems within the unit have delayed work on important new Porsche e-Macan and Audi Q6 e-tron vehicle models.

Volkswagen has launched a new software architecture, but cars made using this technology will not hit the market until 2028.

Nonetheless, VW said Cariad would play a central role in developing software used by all brands.

(Reporting by Abhirup Roy in San Francisco and Ben Klayman in Detroit; additional reporting by Noel Randewich in Oakland, Calif., Christina Amann in Berlin, Harshita Varghese in Bengaluru Editing by Sayantani Ghosh Editing by Rod Nickel, Matthew Lewis and Leslie Adler)

News Source : finance.yahoo.com
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