Proactive Investors - An up to $5 billion investment in Rivian Automotive Inc (NASDAQ:RIVN) from automaker Volkswagen (ETR:VOWG_p) Group (XETRA:VOW) is a game-changer for the electric vehicle maker, Wall Street analysts believe.
Investors appear to agree with them, sending shares of Rivian 28% higher in early trade on Wednesday to about $15.30.
Afterhours on Tuesday, Rivian and Volkswagen announced they are entering into a joint venture to share EV architecture and software.
Volkswagen will initially invest $1 billion in Rivian, with up to $4 billion in planned additional investment.
“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,” Wedbush analysts wrote in a note to clients.
They believe Rivian will leverage the opportunity to support future growth while vertically integrating its software platform and electrical architecture, achieving cost savings and delivering improved vehicles in the future.
“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,” the analysts wrote.
“While this is an exciting announcement for us to see, in the eyes of the Street, the focus will still remain mostly on the R1 execution plans, production, optimization, the Georgia plant, and the profitability story for Rivian over the next quarter/12 months.”
They upped their price target on Rivian to $20 from $15 and maintained their ‘Outperform’ rating.
Meanwhile, Bank of America (NYSE:BAC) analysts reiterated their ‘Buy’ rating on Rivian and $21 price objective following the announcement.
They see the investment as valuable in getting Rivian to positive free cash flow, also noting that it will fund the R2 ramp-up at its Normal facility in Illinois and its new facility in Georgia.
Rivian could see potential benefits from material cost savings and operating efficiencies that would help improve its cost position and ultimately higher gross margins, they added.
Further, there is the potential for future revenue opportunities associated with the joint venture, the bank’s analysts pointed out.
“We reiterate our ‘Buy’ rating on Rivian, which is predicated on our view that the company is one of the most viable among the start-up EV automakers with attractive product, solid long-term strategy, and adequate funding well into 2025 plus,” they wrote.