What happened
Rivian Automotive (RIVN +1.25%) stock dove this morning after the electric vehicle (EV) manufacturer pulled the plug on a potential deal with the world's most popular luxury car brand barely three months after announcing an agreement. Rivian stock dropped 5.2% within minutes of the market's opening Monday.
However, the EV stock regained some ground and was trading down only about 2.6% as of 11 a.m. ET as investors tried to evaluate the reasoning behind Rivian's move to call off the deal.
So what
In early September, Rivian and Mercedes-Benz announced a joint venture to build affordable commercial electric vans, with initial plans including two large vans. The two companies intended to leverage an existing Mercedes-Benz site in Europe to build a new all-electric production facility to manufacture the two vans over the next few years.
Rivian stock jumped after the development as a venture with a global luxury automaker was seen as a much-needed stamp of approval for the EV maker.
NASDAQ: RIVN
Key Data Points
What investors in Rivian may have failed to notice then, though, is that Rivian only signed a memorandum of understanding (MoU), or a nonbinding agreement, with Mercedes-Benz, and stated that the formation of the joint venture was subject to regulatory clearances and final binding agreements.
Turns out, that final binding agreement will not see the light of day, at least for now. This morning, Rivian said it will no longer pursue the MoU with Mercedes-Benz as it plans to focus on its existing consumer and commercial businesses in the near term.
Now what
At first blush, calling off a deal with Mercedes-Benz may sound like a huge blow to Rivian's prospects.
Granted, a joint venture with such a credible brand could have helped Rivian attract more customers and give it headway into the high-potential commercial EV space. To reach that stage, however, Rivian must not only have enough resources and capital to invest in a new joint venture, but also time and focus to make it a success.
It's a tall order.
Rivian currently manufactures the R1T pickup truck and R1S SUV on the consumer side, and electric delivery vans (EDVs) on the commercial side. Although Rivian has a strong order book comprising more than 114,000 preorders between its two R1 models as of Nov. 7 and 100,000 orders for EDVs from e-commerce behemoth Amazon, it is struggling to produce at scale.
This year, the EV maker expects to produce only 25,000 EVs in total. Rivian is also burning through cash and recently pushed back the introduction of a new R2 platform to 2026 from 2025.
Given the backdrop, prioritizing deliveries to fulfill its existing backlog sounds like a more prudent move than spending money elsewhere.
