Rivian Automotive (RIVN 0.99%) just inked a deal with Volkswagen that Fisker dreamed of as it was reaching for help before eventually filing for bankruptcy. That's not to say Rivian is anywhere near the position Fisker found itself in. Still, the potential $5 billion joint venture with Volkswagen will be huge for the start-up electric vehicle maker to power through the launch of its critically important R2 SUV.
Let's break down the joint venture with Volkswagen, look into the past to see a similar instance that fell through, and consider why investors should remain optimistic this time.
Teaming up
Rivian and Volkswagen agreed to form a joint venture to create next-generation electrical architecture and "best-in-class" software technology. The basic idea is to combine strengths to lower cost per vehicle, increase scale, and speed up innovation.
This is how it breaks down: Volkswagen will invest $1 billion in Rivian in a note that will eventually convert to stock. Volkswagen will then make a $1 billion payment at the creation of the joint venture, likely during the fourth quarter. Then, Volkswagen will invest $1 billion in each of 2025 and 2026 if certain milestones are hit, and lastly, the German automaker will provide a $1 billion loan in 2026.
For Rivian, this will provide additional funding to develop the more affordable R2 SUV due in the first half of 2026 and enable it to leverage volumes of supplies to cut costs. "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, according to Reuters.
Many overlook the big point about aiding their strategy internationally, as Rivian's R2, R3, and R3X are expected to be sold internationally after their North America rollout. This deal is a huge win for Rivian. Still, investors also have to remember that sometimes things can go wrong. We only have to look into Rivian's past with Ford Motor Company for an example.
NASDAQ: RIVN
Key Data Points
Rewind the tape
Let's rewind the clock back to 2019. Ford and Rivian formed a strategic partnership through an initial $500 million minority investment -- an investment that Ford would later boost up to $1.2 billion. The idea was for the two automakers to build an all-new electric vehicle using Rivian's platform.
That partnership would be axed before a vehicle was produced, and both companies decided to go their separate ways. This led to Ford selling off what was a substantial stake in Rivian at the time, which weighed on Rivian's stock price for a couple of quarters.
The question is, what possibly differentiates Rivian's joint venture with Volkswagen from the former's partnership with Ford?
It's all about the software
It's likely that Volkswagen needs Rivian far more than Ford needed the start-up electric vehicle maker. Ford's partnership was to build a vehicle using Rivian's platform, but Ford found out what they should have known all along: They can do it on their own just as easily. Ford went on to develop three big hits with the Mustang Mach-E, E-Transit van, and the F-150 Lightning pickup.
Volkswagen, however, has had notable struggles with its software. Volkswagen's software division was set up under former CEO Herbert Diess, and the division consistently exceeded its budget and failed to meet goals, which contributed to Diess' exit in 2022.
Given Volkswagen's recent struggles, there's a clear need for Rivian's software, and Rivian will license its existing intellectual property that will eventually find its way into Volkswagen vehicles, followed by its Audi, Porsche, Lamborghini, and Bentley brands.
What it all means
At the end of the day, it's worth remembering that these joint ventures can go south, especially after the joint venture news initially sent Rivian's stock 50% higher. However, this joint venture appears more secure than Rivian's past partnership with Ford, as there's a clear need for Volkswagen's software development.
For that reason, investors should remain optimistic about this huge win for Rivian in the ever-evolving electric vehicle industry.
