Rivian Automotive Inc. will receive a crucial cash boost through a new partnership with Volkswagen AG, as automakers reevaluate their strategies in a slowing electric-vehicle market.
The companies announced a joint venture, starting with an initial $1 billion investment from VW in Rivian, potentially increasing to $4 billion over time. In return, VW will gain access to Rivian’s technology for its own EVs and a partner to develop next-generation battery-powered vehicles and software.
Following Tuesday’s announcement, Rivian’s shares surged over 50% in extended trading, recovering nearly half of the year-to-date losses.
This unexpected alliance provides Rivian with a financial lifeline as it struggles to ramp up production and deliveries of its electric pickup and SUV models. In March, Rivian paused plans for a new manufacturing plant in Georgia to conserve cash, facing significant losses, approximately $39,000 per vehicle produced last quarter.
An EV Reckoning
The broader auto industry is retrenching due to a slowdown in electric vehicle demand. Ford Motor Co. is cutting $12 billion in EV spending and delaying new models and factories, while General Motors Co. recently admitted that it will take decades for the EV market to develop. Mainstream buyers’ reluctance to adopt EVs has left companies like Rivian struggling, with even market leader Tesla Inc. experiencing disappointing sales and shrinking profit margins.
“The cost of continuing alone is too high, and investors are less enthusiastic about EV companies than when Rivian started,” said Erik Gordon, a 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, according to a joint statement from the companies.
Volkswagen will initially take a $1 billion equity stake in Rivian through an unsecured convertible note, which will convert into Rivian shares on or after Dec. 1. Amazon.com Inc. remains Rivian’s largest shareholder, with a 16% stake valued at nearly $2 billion as of Tuesday’s close.
VW will then invest an additional $2 billion in Rivian shares in two equal tranches in 2025 and 2026. Additionally, VW plans to contribute $2 billion to the joint venture, split between a payment at its inception and a loan available in 2026.
The agreement structure appears favorable to Rivian. While investors might cede some control to VW, if Rivian’s shares appreciate from current levels, there would be less equity dilution, resulting in VW owning a smaller percentage of the company.
On a call following the announcement, Rivian CEO RJ Scaringe said VW’s support would help Rivian proceed with plans to build the new Georgia plant. Rivian remains contractually obligated to invest $5 billion in the Georgia project by the end of the decade.
Garrett Nelson, an analyst at CFRA Research, described the announcement as a “vote of confidence in Rivian” but noted it “does little” to address the company’s operating issues and cash burn.
Rivian went public in November 2021 during peak enthusiasm for the rapid emergence of the EV future, briefly achieving a market value exceeding Ford and GM. However, many EV startups have since struggled as mainstream car buyers turned away from expensive models.
For VW, the partnership provides access to Rivian’s software and EV architecture after years of challenges in developing efficient and functional plug-in vehicles comparable to Tesla’s.
Rivian has previously attempted partnerships with established automakers. In November 2021, it abandoned plans to develop EVs with Ford, an early investor. In December 2022, it also shelved a deal to build electric vans with Mercedes-Benz.
