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Rivian Automotive (NASDAQ:RIVN) shot up in early trading on Wednesday after the electric vehicle maker jointly announced with Volkswagen (OTCPK:VLKAF) the formation of a joint venture to share electric vehicle architecture and software.
Bank of America analyst John Murphy said the news is meaningfully positive for Rivian Automotive (RIVN) as the agreement should provide the company with access to capital to not only fund the ramp-up of production of the R2 at its Normal, Illinois facility, but also to build a new facility in Georgia for its mid-size vehicle platform. “RIVN could also see potential benefits from material cost savings and operating efficiencies that would help improve its cost position and ultimately higher gross margins,” noted Murphy.
Wedbush Securities raised its price target to $20 and kept an Outperform rating in place. “This is a core game changer for Rivian and changes the capital structure of the company looking ahead for the story and the Street’s view at a key time,” updated analyst Dan Ives. He expects that Rivian (RIVN) will leverage the Volkswagen (OTCPK:VLKAF) opportunity by utilizing the robust capital roadmap to support future growth, while also vertically integrating its software platform and electrical architecture to reduce cost savings and deliver improved vehicles down the line.
Evercore ISI analyst Chris McNally said his firm views Volkswagen’s (OTCPK:VLKAF) $3 billion potential equity injection combined with $2 billion planned joint venture investment as essentially a $4 billion to $5 billion RIVN low dilution, low-interest equity infusion plan over the next three years.
Morgan Stanley’s Adam Jonas on the Volkswagen (OTCPK:VLKAF) upside for Rivian: “Anyone could have provided money, but we believe VW may potentially value much more what Rivian has to offer. Rivian has software and SDV architectural solutions that VW needs. VW has scale and manufacturing capability that Rivian may need. While not a change of control, this mutual need may have the potential to build a stronger/lasting relationship… We see Rivian as uniquely positioned within autos (other than Tesla) on scaling a fully integrated software stack critical to unlocking the AI opportunity.”
Cantor Fitzgerald expects Rivian (RIVN) will be able to extend its cash runway, to achieve additional cost savings, and to improve its margin profile over the medium to long term.
On Seeking Alpha, Investing Group Leader Henrik Alex upgraded Rivian Automotive (RIVN) to a Hold rating from Sell. Alex thinks that Volkswagen (OTCPK:VLKAF) is buying into Rivian’s (RIVN) architecture to address persistent issues with its own CARIAD software unit, which have resulted in multi-year delays of some of its highest profile EVs. However, he thinks an outright takeover of RIVN by the German auto giant is unlikely.
Shares of Rivian Automotive (RIVN) jumped 40.72% in premarket trading to $16.83, although that is still below the level where they started the year. Lucid Group (LCID) rose 4.80% as the Rivian (RIVN) news sunk in. Across the Atlantic, Volkswagen (OTCPK:VLKAF) was down 1.77% in Frankfurt trading.
