VW boosts investment in Rivian, but significant challenges remain

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Written on Nov 13, 2024

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Volkswagen raised its planned investment in Rivian to $5.8 billion.
But the Trump administration is unlikely to bode well for EV manufacturers.
Rivian stock is up 13% following the VW news on Wednesday.

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Rivian Automotive Inc (NASDAQ: RIVN) is up more than 13% in premarket this morning after Volkswagen Group (ETR: VOW3) increased its planned investment in the electric vehicle maker to $5.8 billion.

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Volkswagen was originally expected to spend up to $5 billion to set up a joint venture with Rivian.

On Wednesday, the German automaker reiterated plans to use Rivian’s software and electrical architecture in its vehicles slated to roll out in early 2027.

“We’re thrilled to see our technology being integrated into vehicles outside of Rivian, and we’re excited about the future,” RJ Scaringe – the chief executive of Rivian said in a statement today.

Rivian stock is now up roughly 25% versus its recent low.

What the VW investment means for Rivian

Rivian’s technology will power Volkswagen as well as Audi vehicles in the coming years. VW even plans on integrating its software and electrical architecture in some sports cars as well.

The capital injection feeds right into Rivian’s commitment to becoming a sustainably profitable electric vehicle company.

CEO Scaringe expects the VW investment to help Rivian scale its operations and pursue ambitious growth initiatives.

“We have cash on hand that funds not just the launch of R2 but it funds the build of the R2 platform, which underpins both R2 and R3 in our Georgia facility, and takes us to positive free cash flow,” he told CNBC in a recent interview.

The partnership is a significant step towards profitability also because it enables Rivian to diversify its business and tap into VW’s extensive global market, potentially increasing its customer base and revenue potential.

Together, Rivian Automotive and Volkswagen Group may scale new technologies more quickly, reducing development costs and accelerating the time to market new products.

What the Trump administration means for RIVN

Despite the VW investment, there’s reason to take Rivian stock with a pinch of salt.

Why? Because Donald Trump has come out victorious in the US elections 2024 and the Republican government is broadly expected to roll back on a number of vehicle emissions standards.

Trump has been vocal against the EV push, claiming the American consumer is being forced to buy electric vehicles. He may, therefore, eliminate parts of the Inflation Reduction Act aimed at boosting the production of EVs as well.

Last week, Rivian posted a wider-than-expected quarterly loss but reiterated its commitment to recording a “modest positive gross profit” in its fiscal Q4. But would it be able to remain in the profitability territory as Donald Trump takes Office – only time will tell.

That’s part of the reason why analysts at Wells Fargo find Rivian stock as fairly priced at $11 only – and AutoForecast chief executive Joe McCabe even sees the possibility of bankruptcy ahead.