Rivian Automotive Inc. will receive a much-needed money injection through a brand new partnership with Volkswagen AG as automakers large and small rethink their strategies amid the weakening electric vehicle market.
The two corporations announced plans for a three way partnership backed by an initial $1 billion investment in Rivian from VW, and as much as $4 billion more over time. In return, VW will get access to the startup’s technology to be used in its own electric vehicles and a partner to develop “next-generation” battery-powered vehicles and software.
Following Tuesday’s announcement, Rivian shares jumped greater than 50% in prolonged trading, erasing about half of their losses to date this yr.
The surprise merger provides the electrical automobile maker with a financial lifeline after it struggled to ramp up production and delivery of its electric pickup and SUV models. Rivian in March paused plans To get monetary savings, the corporate built a brand new manufacturing facility in Georgia while battling heavy losses that amounted to around $39,000 per vehicle inbuilt the last quarter.
An EV billing
The move comes as your complete auto industry pulls back amid an unexpected slowdown in demand for electric vehicles. Ford Motor Co. is Spending cuts for electric vehicles by $12 billion and is delaying construction of latest battery-powered models and factories, while General Motors Co. recently admitted that it would take “decades” for the electrical vehicle market to develop. Mainstream buyers’ reluctance to embrace the electrical age has put pure-play electric vehicle makers like Rivian under pressure. Even market leader Tesla Inc. is facing disappointing sales and declining profit margins.
“The costs of continuing to go it alone are too high, and investors are less interested in electric car companies than they were when Rivian started,” said Erik Gordon, clinical professor on the University of Michigan’s Ross School of Business.
The recent company will probably be “equally controlled and owned by VW and Rivian,” the businesses said in a joint statement.
Volkswagen plans to secure the initial $1 billion Rivian stake through an unsecured convertible note that will probably be convertible into Rivian stock on or after Dec. 1. Amazon.com Inc. is Rivian’s largest shareholder, holding a 16 percent stake that was price nearly $2 billion at market close Tuesday.
The pact then calls for VW to take a position an extra $2 billion in Rivian shares in two equal tranches in 2025 and 2026. The German automaker also intends to contribute $2 billion to the three way partnership through a payment at incorporation and a loan that will probably be available in 2026.
The structure of the agreement looks favorable for Rivian. While the investors may quit some control to VW, if Rivian shares rise from current levels, the dilution of equity could be less and VW would own a smaller portion of the corporate after acquiring the shares.
In a phone call following the announcement, Rivian CEO RJ Scaringe said VW’s support will help Rivian advance plans to construct the brand new plant in Georgia. Rivian stays contractually obligated to take a position $5 billion within the Georgia project by the top of the last decade.
Garrett Nelson, an analyst at CFRA Research, said the announcement was a “vote of confidence in Rivian” but did “little” to vary the corporate’s operational problems and money burn.
Rivian went public in November 2021, when excitement concerning the imminent arrival of the EV future was at its highest, as the corporate was seen as a potentially serious competitor to Tesla. An early surge in Rivian shares briefly gave the corporate a market value that surpassed that of Ford and GM. But since then, many EV startups have fallen by the wayside as mainstream automobile buyers turned away of high-priced models.
For VW, which means that the German auto giant will gain access to Rivian’s software and electric vehicle architecture after the corporate struggled for years to bring plug-in vehicles to market that would match Tesla’s when it comes to efficiency and functionality.
Rivian has tried partnerships with established automakers previously. In November 2021 leave plans to jointly develop electric vehicles with Ford, an early investor. And in December 2022 postponed a contract to construct electric transporters with Mercedes-Benz.
