Auto shockers expected as Rivian secures Volkswagen as major partner

Rivian partners with Volkswagen in $5 billion joint venture, boosting stock nearly 50%. Major automakers may follow suit with partnerships.

Rivian Automotive (NASDAQ:RIVN) made waves in the electric vehicle sector by announcing a joint venture with Volkswagen (OTCPK:VLKAF) (OTCPK:VWAGY). Volkswagen's planned investment of $5 billion, combined with Rivian's current cash position, will provide the capital needed to fund operations for the ramp-up of R2 in Normal, Illinois and the midsize platform in Georgia. This strategic partnership will allow Rivian to bring its software and zonal electronics platform to a broader market through Volkswagen Group's global reach and scale, according to Rivian CEO RJ Scaringe.

Analysts believe that the investment from Volkswagen will give Rivian more flexibility as it moves towards profitability. While the joint venture does not include collaboration on electrical hardware, motors, batteries, and vehicle platforms, the development of next-generation software-defined vehicle platforms could potentially be shared with other companies. Despite this positive development, concerns remain about Rivian's operating issues and cash burn rates, which have been around one billion dollars per quarter. However, Volkswagen clearly sees value in gaining access to Rivian's vehicle architecture and software.

Following the announcement, shares of Rivian Automotive (RIVN) surged 49.9% in after-hours trading, on top of an 8.6% gain during the regular session. Despite this increase, the stock still trades below its $78 IPO pricing level from 2021 and its all-time closing high of $172.01.

In the broader sector, there is speculation that partnerships between major automobile manufacturers may become more common as companies reevaluate their electric vehicle strategies. Some analysts suggest that legacy automakers like General Motors (GM), Ford Motor (F), and Stellantis (STLA) could explore collaborations with Chinese companies, EV startups, each other, or even Tesla (TSLA) through licensing or supply deals. This shift in strategy would mark a departure from previous plans to emulate Tesla through significant proprietary investments in supply chain, manufacturing capabilities, software development, battery sourcing, and infrastructure. Elon Musk, CEO of Tesla, has indicated that the company is in talks with another major automaker about licensing full self-driving software. Additionally, NIO's aggressive moves in Europe could pave the way for a major partnership with a local player in the region.