Under a partnership announced by Volkswagen and Rivian, the German automaker will provide $1 billion initially and as much as $4 billion more over time. The German automaker will also invest $2 billion in Rivian stock – $1 billion each in 2025 and 2026 – subject to the startup hitting certain milestones, and provide a $1 billion loan in 2026.

Volkswagen investment in Rivian

The infusion of $5 billion will give VW the ability to tap the company’s technology to develop “next generation” battery-powered vehicles and software. The surprise investment by Volkswagen comes during a tough time for the electric vehicle market, which has posed economic headwinds for Rivian and other EV makers.

Shares of Rivian surged about 50% in extended trade after the announcement, potentially supercharging the company’s market value by nearly $6 billion, if gains hold on Wednesday.

Effect of Volkswagen and Rivian partnership

The investment will provide Rivian the funding necessary to develop its less expensive and smaller R2 SUVs that are set to roll out in early 2026 and its planned R3 crossovers, CEO RJ Scaringe told Reuters. Moreover, the partnership will enable Rivian to cut operating costs by leveraging volumes of supplies including chips and components, he said.

It will also help Rivian, known for its flagship R1S SUVs and R1T pickups, turn cashflow positive. The company will license its existing intellectual property to the JV, and the R2 will be the first vehicle using software from the JV. Volkswagen vehicles, including its Audi, Porsche, Lamborghini and Bentley brands, will follow.

“Any cash infusion like that is huge. Getting the support of Volkswagen Group certainly really strengthens their story toward Europe and toward Asia eventually,” said Vitaly Golomb, managing partner at Mavka Capital, a Rivian investor.

Rivian’s financial loss

With their sleek design, Rivian trucks and sport utility vehicles initially drew plenty of interest among investors, fueling a massively successful IPO of stock in 2021. The company ended its first day of trading valued at nearly $88 billion. Amazon.com is Rivian’s largest shareholder.

But analysts said some car buyers were put off by the high price of Rivian’s latest offering of vehicles. Rivian’s R1T electric pickup truck starts at nearly $70,000, while its R1S SUV starts at almost $75,000.

Rivian reported a net loss of $1.52 billion for the three-month period that ended Dec. 31, compared with $1.72 billion during the same period a year earlier.

In March, Rivian postponed plans to build a new $5-billion manufacturing plant in Georgia to save money amid heavy losses.

A month earlier, Rivian announced a 10% cut to its workforce and lower production expectations.

Struggling EV market

The auto industry faces a crucial time as EV startups grapple with a slowdown in demand amid high interest rates and dwindling cash, while traditional automakers struggle to build battery-powered vehicles and advanced software.

Last week another local EV manufacturer Fisker Group Inc. of Manhattan Beach filed for Chapter 11 bankruptcy protection after it failed to secure financing from undisclosed automakers.

Early this year, Apple pulled the plug on its self-driving electric vehicle program, reportedly after spending $10 billion over a decade.

And Lucid Motors, a maker of luxury electric vehicles in the Bay Area city of Newark, received a $1-billion infusion last month from an affiliate of the Saudi sovereign wealth fund — the kind of big backer that Fisker didn’t have.

Rivian’s shares

Rivian stock has halved so far this year. Traders have bet heavily that the stock will fall, with an equivalent of 18% of its shares recently sold short. Rivian’s shares jumped 30% in extended trading on Tuesday. The shares closed at $11.96. While Volkswagen’s stock closed a bit higher at 106.55.

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Rivian’s production upbeat forecast is a small positive for an industry reeling from the double whammy of high inflation that has dulled buyer appetite and price cuts at market leader Tesla to stimulate demand.

EV demand dim

Last month, Tesla CEO Elon Musk said he was concerned about the impact of high interest rates on car buyers, echoing caution from General Motors and Ford amid fears of a slowdown in demand.

Smaller rival Lucid cut its production forecast on Tuesday “to prudently align with deliveries,” sending its shares down 4%. It now expects to produce 8,000–8,500 vehicles this year, down from an earlier projection of more than 10,000.

“I’m actually surprised to be honest at how much we’ve seen others pull back,” Rivian Chief Executive RJ Scaringe said. “I think it’s going to create, unfortunately, somewhat of a vacuum of products in the market.”

He said that “shifts in buying behavior beyond the tail end of 2023” were not influencing Rivian’s investment strategy for cheaper R2 vehicles that the company expects to launch in 2026.

Rivian’s turn around

After multiple quarters of supply chain problems, Rivian may be starting to turn a corner, some analysts have said. But the company shocked investors with an earlier-than-expected bond issuance last month that sent Rivian shares crashing.

On Tuesday, it trimmed its capital expenses and loss forecasts for the year. The company was cutting costs through negotiations with suppliers and updates to components and systems, Scaringe said.

Rivian assembly line update

Rivian production will also stop for a week this quarter to update its assembly line which Scaringe said partly kept him from raising the annual production outlook even more ahead of a bigger shutdown next year.

“Rivian showed resilience,” said Alec Lucas, analyst at Global X on Rivian production outlook. “Rivian appears to be benefiting from a more favorable commodity pricing environment, order book realization and progress toward scale.”

Lucid result, 2023

He said Lucid’s 2023 results “were reflective of efforts to scale production as well as an ongoing restructuring initiative.”

Car prices at both Lucid, which is backed by Saudi Arabia’s Public Investment Fund, and Amazon.com-backed Rivian start at more than $70,000. That is similar to Tesla’s Model S luxury sedan, but much higher than the cheapest Tesla model at around $38,000.

Rivian has stayed away from cutting prices and has instead taken to making its Enduro powertrains in-house to reduce dependency on suppliers and slash costs.

The company previously said sales of its higher-priced SUVs have been strongly outpacing sales of its pickup truck R1T, improving the average selling price of its vehicles.

Last month, it reported third-quarter deliveries above market expectations.

The Newark, California-based company Lucid shares had a loss of 28% per share.

Rivian Amazon Deal

Rivian also said on Tuesday it will end its exclusivity deal to largest shareholder Amazon for its electric delivery van, opening the door for more customers around the world, but reiterated its commitment to fulfilling the order of 100,000 vans to Amazon by 2030.

Rivian said was speaking with other customers that are interested in the Rivian Commercial Vehicle platform, which underpins its electric delivery vans, but declined to reveal any names.

Rivian revenue

Rivian’s third-quarter revenue of $1.34 billion was largely in line with Wall Street estimates, while its quarterly loss narrowed from a year earlier.

Cash as of end-September was $7.94 billion, down from $9.26 billion three months prior.

Lucid’s quarterly losses narrowed as well, but its revenue fell short of estimates. Production fell nearly 30% to 1,550 vehicles.

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Rivian shares popularity

Rivian Automotive (RIVN -22.88%) has been a Wall Street darling among stocks in the electric vehicle (EV) sector recently. Going into today’s trading session, Rivian shares were up an astounding 54% over the last six months.

But the Rivian stock is getting slammed today. Rivian stock price today as of 10:25 a.m. ET, had tumbled by 17.2%.

What made Rivian stock fall?

The crash came after the company provided preliminary financial results for the third quarter. Investors reading between the lines were disappointed, and that disappointment was reinforced by another announcement that Rivian was planning to sell $1.5 billion in convertible debt.

It’s not uncommon for stocks to drop after convertible bond sales are announced. After all, it potentially adds common shares that would dilute existing shareholders. In this case investors are likely more worried about how it relates to what’s going on in the business. Rivian reported $10.2 billion in cash and equivalents on its balance sheet as of June 30. But in the new filing, the company showed that it burned through more than $1 billion in cash in the third quarter, which ended with $9.1 billion on the balance sheet.

Strategies by Rivian to revive

Rivian had previously announced its vehicle production and delivery data for the third quarter. So investors already had a pretty good idea of how much revenue was generated in the quarterly period. The range it provided in the filing did indeed fall in line with analyst expectations.

But the cash burn and subsequent bond sale has certainly increased investor anxiety today that has seen Rivian stock to fall. Many had likely believed that Rivian had a sufficient cash pile to reach positive cash flow from its operations. That seems in doubt now, and the rate of cash burn surprised investors. Look for more details when the company reports its full third-quarter results and answers analyst questions on Nov. 7.

Rivian an expensive buy

Rivian’s vehicles are tempting for American buyers of electric-powered pickup trucks that handle like sports cars. But they sell at about $80,000 on average, and developing them is expensive. It isn’t that bad, explains Benchmark analyst Mike Ward. Ford is spending billions on R&D. Ward estimates that the EVs are profitable at the gross profit margin line of the profit and loss statement. Ford doesn’t report gross profits by division.

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