Updated at 9:45 AM EDT
Rivian Automotive shares soared higher Wednesday, potentially adding more than $4 billion in value to the electric-truck maker, after it reached a joint venture and investment agreement with German giant Volkswagen AG.
Rivian (RIVN) , which is planning to launch two lower-priced EV trucks over the next two years as part of a major challenge to Tesla (TSLA) in the domestic EV market, has secured a $5 billion investment from Volkswagen (VWAGY) that can be converted to a 10% stake in the Irvine, California-based company.
The new joint venture will see Rivian license its software technology to Volkswagen, which gets to jumpstart its flagging Cariad division, while providing a financial lifeline to the U.S. group, which is losing around $39,000 on each vehicle it produces.
“Since the earliest days of Rivian, we have been focused on developing highly differentiated technology, and it’s exciting that one of the world’s largest and most respected automotive companies has recognized this,” said Rivian CEO RJ Scaringe.
Rivian will license its key in-car software technology to Volkswagen in exchange for a $5 billion investment lifeline.
“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 [it] also is expected to help secure our capital needs for substantial growth,” he added.
Volkswagen’s $5 billion lifeline to Rivian
Volkswagen’s original $1 billion investment will be held through an unsecured convertible note, which it can convert into Rivian shares later this year, with a commitment for a further $2 billion over the next two years.
Another $1 billion will flow from Volkswagen to Rivian when the joint venture is completed, likely by the end of this year with a further $1 billion in loans provided in 2026.
“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” Volkswagen CEO Oliver Blume said. “We are also acting in the best interest of our strong brands, which will inspire with their iconic products.”
Related: Analyst sets Rivian stock price target as rival Tesla struggles
“The partnership fits seamlessly with our existing software strategy, our products, and partnerships,” he added. “We are strengthening our technology profile and our competitiveness.”
Wedbush analyst Dan Ives, who boosted his Rivian price target by $5 to $20 a share following news of the Volkswagen investment, called the deal a “core game changer for Rivian and changes the capital structure of the company” at a key stage in its development.
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“Rivian will leverage this opportunity by utilizing this robust capital road map to support future growth while vertically integrating its software platform and electrical architecture while achieving further cost savings and deliver improved vehicles down the line,” Ives said.
“Importantly, this partnership will provide capital needed for the R2 ramp and [Georgia] plant R2/R3 midsize platform, which we view as a large step in the right direction and a key move for Rivian going forward,” he added.
Truist Securities analyst Jordan Levy lifted his Rivian price target by $3 to $13 a share heading into the carmaker’s annual investor day event on June 27.
Rivian production struggles
Earlier this year Rivian was forced to shut down its main production lines amid a slump in EV demand. But last month it stuck to its full-year forecasts as it looked to new lines and efficiencies to offset consumer concerns about higher vehicle prices.
A new production platform, unveiled in March, will support Rivian’s new midsized SUV, the R2, as well as its similarly sized R3 crossover.
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The R2, originally slated to be made at an expanded plant in Georgia, will instead be produced at the group’s main facility in Normal, Ill., a move it says will ultimately save around $2 billion.
Rivian shares were marked 32.1% higher in premarket trading to indicate an opening bell price of $15.8each, the highest since mid January.
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