Electric vehicle maker Rivian gets up to $5 billion injection from Volkswagen June 26, 2024

Electric vehicle manufacturer Rivian and Volkswagen have announced a joint venture in which the German company will invest US$5 billion in the American carmaker © Phillip Faraone / GETTY IMAGES NORTH AMERICA/AFP/File

By AFP - Agence France Presse

Electric vehicle maker Rivian gets up to $5 billion injection from Volkswagen

New York (AFP) - German auto giant Volkswagen will invest 5 billion dollars in US electric vehicle maker Rivian and create a joint venture that will produce technology used by both automakers, the companies announced Tuesday.

The collaboration includes a direct investment of $3 billion by the German company in Rivian and $2 billion to establish an equally controlled and owned joint venture "to create next-generation electric architecture and best-in-class software technology," the companies said in a press release.

Rivian shares rose 8.6 percent on Tuesday and nearly 50 percent in after-hours trading after the deal was announced shortly after trading.

Despite being praised for its technology, Rivian has been making losses and losing money.

According to the deal, VW will make an initial investment of $1 billion in the US company in 2024, converted into Rivian ordinary shares, followed by subsequent rounds in 2025 and 2026 of $1 billion each.

The additional $2 billion from VW is expected to be split between a payment at the start of the joint venture and a loan in 2026, the companies said.

In addition to boosting Rivian's balance sheet, the deal represents a vote of confidence by VW in the Californian company's platform, which will improve the electric vehicle maker's ability to obtain concessions from key suppliers, company officials said in a conference call with analysts.

"The transaction as a whole provides a powerful platform for Rivian's future growth," said Chief Financial Officer Claire McDonough. "And it's not just the $2 billion of capital related to the JV. It's the total capital of $5 billion and the opportunity we have to accelerate our mission."

VW's investment will allow Rivian to finance investments to increase production at its Illinois plant and to move forward on a new plant in Georgia, the company said.

These two projects provide "a path to positive free cash flow and significant scale," Rivian said.

The venture will allow VW to employ Rivian's existing electrical architecture and software blueprint, accelerating the German company's efforts in software-defined vehicles.

"Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost," said VW chief executive Oliver Blume.

"We are strengthening our technological profile and our competitiveness," said Blume.

The two companies expect the transaction to be completed in the fourth quarter of 2024, with regulatory approvals anticipated.

CFRA Research raised its price target on Rivian's shares but maintained a "sell" recommendation for the company.

"While the announcement is a vote of confidence in Rivian, we think it does little to change the company's operational problems and troubling cash burn rates, which have been around a billion dollars per quarter," said Garrett Nelson of CFRA.

"The main question is why VW would make such an investment in a struggling electric vehicle manufacturer that could face going-concern risk in the future, but VW sees value in gaining access to RIVN's vehicle architecture and software," Nelson said.

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