On Wednesday, Deutsche Bank (ETR:DBKGn) maintained its Hold rating and $12.00 stock price target for Rivian Automotive Inc (NASDAQ:RIVN), following news of the company's deepened collaboration with Volkswagen (ETR:VOWG_p) (VW).
The joint venture, which was first announced in June, has now been solidified, enabling shared research and development costs for electric vehicle (EV) electrical architecture and software. This partnership is expected to benefit multiple models and brands.
The terms of the joint venture have been updated from the initial announcement, with the maximum potential investment in Rivian now set at approximately $5.8 billion, up from the previous estimate of $5.0 billion.
The revised terms include an additional $320 million cash injection at the start of the joint venture, totaling $1.32 billion compared to the initial $1 billion. Furthermore, an extra investment of $460 million is anticipated in the second half of 2027, at an 84% premium.
According to Deutsche Bank's analysis, the funding milestones are independent and not overly ambitious, suggesting VW's strong commitment to the partnership. Rivian is expected to cover only 25% of the shared expenses within the joint venture through 2028, beginning with the development of the R2 vehicle.
This arrangement is anticipated to significantly reduce Rivian's operational expenses starting next year. Even after 2028, when Rivian will take on 50% of shared development costs, VW has agreed to contribute $100 million annually to help offset Rivian's share.
The partnership is poised to bolster Rivian's financial position, potentially leading to free cash flow (FCF) breakeven or positivity by providing a buffer against operational challenges that may arise as it scales up production of the R2 and R3 models.
From VW's perspective, the joint venture grants access to Rivian's electrical and electronic (E/E) architecture, which VW plans to implement across its platforms, starting with premium brands like Porsche (ETR:P911_p) and Audi, and eventually extending to mass-market vehicles.
Deutsche Bank views the agreement as an opportunity for VW to leverage advanced technology from a U.S.-based architecture system to enhance the competitiveness of its own models. The terms also offer VW certain safeguards by setting reasonable milestones to ensure a return on its investment.
In other recent news, Rivian reported lower than expected earnings for a recent quarter, with revenues at $874 million against a consensus estimate of $982 million.
Investment firms DA Davidson, Mizuho (NYSE:MFG), and Stifel have revised their price targets for Rivian and maintained neutral or buy ratings. Despite supply chain disruptions affecting production, Rivian produced 13,200 vehicles and delivered around 10,000 units. The company anticipates delivery growth in the low single-digit percentage range year-over-year and aims for a positive gross margin by the fourth quarter of 2024.
These recent developments highlight Rivian's resilience and potential for growth despite ongoing challenges. They also underscore the importance of strategic partnerships and innovations in shaping the future of the automotive industry.
InvestingPro Insights
Rivian's recent partnership with Volkswagen aligns with several key financial metrics and trends highlighted by InvestingPro. The company's market cap of $10.8 billion reflects its significant position in the EV market, despite recent challenges. An InvestingPro Tip notes that Rivian "holds more cash than debt on its balance sheet," which could be crucial for funding its share of the joint venture and ongoing operations.
The collaboration with VW comes at a critical time, as InvestingPro data shows Rivian's revenue growth at 20.33% over the last twelve months, but with a concerning quarterly revenue decline of 34.63%. This partnership could help stabilize Rivian's financial position, addressing another InvestingPro Tip that the company is "quickly burning through cash."
While Rivian faces profitability challenges, with a gross profit margin of -43.42% and operating income margin of -123.25%, the VW deal may help improve these metrics over time. The joint venture's structure, which limits Rivian's cost exposure, could be particularly beneficial given that InvestingPro Tips indicate the company "suffers from weak gross profit margins" and is "not profitable over the last twelve months."
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Rivian, providing deeper insights into the company's financial health and market position.
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