Shares of Rivian (NASDAQ:RIVN) stock are accelerating higher after the electric vehicle (EV) company secured an investment of up to $5 billion from Volkswagen (OTCMKTS:VWAGY). In addition, the two automakers will form a joint venture (JV) focused on advancing software-defined vehicle (SDV) platforms. Rivian and Volkswagen expect the JV to become active in the fourth quarter.
Volkswagen will initially invest $1 billion in Rivian by purchasing a newly issued 4.75% convertible promissory note. This note will convert into RIVN stock upon the later of receiving regulatory approval and Dec. 1.
Volkswagen will invest another $1 billion in 2025 and another in 2026. Another $1 billion will be invested into the JV, while the last $1 billion will be provided as a loan in 2026.
“Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership also is expected to help secure our capital needs for substantial growth,” said Rivian CEO RJ Scaringe.
What Does the $5 Billion Rivian-Volkswagen Deal Mean for RIVN Stock?
Rivian already has Amazon (NASDAQ:AMZN) as a major backer, although the e-commerce giant doesn’t have the automotive expertise or supply chain connections that Volkswagen has. With the investment, Rivian just got a major helping hand in scaling its production and deliveries. Its funding concerns have also been greatly alleviated while its cash runway has been lengthened.
Piper Sandler analyst Alexander Potter expects Rivian to deploy some of the capital towards building a second facility in Georgia. Upon the news, Potter reiterated his price target of $21.
Rivian also noted that it would use some of the proceeds to ramp up R2 production and its midsize platform, “enabling a path to positive free cash flow and meaningful scale.”
From the JV, both companies expect to release vehicles with new software by the second half of the decade and realize cost reduction. This could help drive up margins and help Rivian achieve profitability earlier.
All in all, Volkswagen’s investment as a legacy automaker provides Rivian with a huge advantage and stamp of approval over its competitors.
On the date of publication, Eddie Pan held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
