Rivian (NASDAQ:RIVN) stock is up about 40% in the last 24 hours after signing a joint venture deal with German carmaker Volkswagen (OTCMKTS:VWAGY)
Volkswagen will put up to $5 billion into the venture, licensing Rivian’s hardware design and electrical system for next-generation electric vehicles (EVs). About $1 billion will come in right away, the other $4 billion going to the joint venture over time.
RIVN stock was due to open this morning at about $16.40 per share, a market capitalization of about $16 billion. The announcement added $4.6 billion to the company’s market cap overnight. VWAGY stock was virtually unchanged at $12.20, a market cap of $61.8 billion.
Rivian’s Big Win
The deal solves a problem I’ve been pointing to for months: Rivian’s need for capital to cross the EV “death valley.”
Rivian lost $1.45 billion in the first quarter that ended in March, with $7.8 billion in cash and securities. It has been conserving cash with layoffs, and by moving production of its coming R2 vehicle back to Illinois. It is delaying the construction of its plant in Georgia. Founder R.J. Scaringe was also selling some of his own stock.
Now the fears have abated. Rivian can build its R2, aiming to make a profit on a $45,000 vehicle, and plan for its lower-cost R3, still due to be built in Georgia starting in 2027.
For Volkswagen, the deal helps it compete with Chinese EV makers, who have been pushing it out of that key market. It’s still the second-largest car maker, after Toyota Motor (NYSE:TM), controlling such brands as Audi and Porsche (OTCMKTS:POAHY). Volkswagen cars with Rivian technology aren’t due to be available until the latter part of the decade.
RIVN Stock: What Happens Next?
The deal guarantees Rivian’s short-term survival. It will be able to raise new debt to build its plant in Georgia. It also gives Volkswagen and its brands a foothold in the American EV market, which is some years behind China’s.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
