Volkswagen's Rivian Investment 'De-Risks' Future Growth Plans But 'Funding Isn't Free': 7 Analysts Size Up JV News Against 'Challenging Backdrop For EVs'

Shares of Rivian Automotive RIVN are trading higher Wednesday on the heels of an announced $5-billion investment by Volkswagen AG VWAGY.

Analysts are evaluating the new investment and previewing Rivian's investor day, which is set for Thursday.

The Rivian Analysts: Truist analyst Jordan Levy has a Hold rating and raised the price target from $10 to $13.

Bank of America analyst John Murphy has a Buy rating and $21 price target.

JPMorgan Chase analyst Ryan Brinkman has an Underweight rating and raised the price target from $10 to $14.

DA Davidson analyst Michael Shlisky has a Neutral rating and $12 price target.

Morgan Stanley analyst Adam Jonas has an Overweight rating and $13 price target.

Stifel analyst Stephen Gengaro has a Buy rating and $18 price target.

Piper Sandler analyst Alexander Potter has an Overweight rating and $21 price target.

Related Link: Rivian Q1 Earnings Highlights: Revenue Beat, EPS Miss, Vehicle Guidance Reaffirmed

Truist on Rivian: Cost reduction efforts could take center stage at Rivian's Investor Day, Levy said.

Rivian's ability to profitably make the R1 is "key to the story" for the near-term and for long-term confidence in future vehicle rollouts, the analyst said.

"The most important item investors should be focused on will be confidence levels surrounding YE24 gross margin breakeven on R1 given the importance of R1 profitability to RIVN's capital runway”

Rivian likely won't change EBITDA or production estimates for fiscal year 2024, he said.

Bank of America on Rivian: The electric vehicle company could be "electrified" by the Volkswagen investment, Murphy said in a new investor note.

"The agreement gives RIVN capital that will be valuable in helping it achieve the scale necessary to get to positive FCF," the analyst said.

The new, equally owned joint venture could help Rivian ramp production of its R2 vehicle and also help with the building of a new Georgia facility to produce new vehicles, he said.

"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."

The joint venture could also provide future revenue opportunities for Rivian, Murphy said.

"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+.”

The analyst also highlighted the potential positive impact Rivian's joint venture could have for Lucid Group LCID.

The analyst, who has a Neutral rating on Lucid and $3 price target, said Lucid already has partnerships and could see other OEMs look to pair with the automaker given its EV technology.

"This news may give investors more confidence that EV companies such as LCID can attract capital despite the recent slowdown in the EV market."

JPMorgan on Rivian: The formation of a joint venture with Volkswagen validates Rivian's technology, Brinkman said.

"The investment likely replaces external capital we expected the firm would otherwise have raised," the analyst said.

The new joint venture does not eliminate a dilution risk for Rivian, he said.

Brinkman sees a "challenging backdrop" for electric vehicles going forward, adding that Rivian should grow quickly in the years beyond 2025, but it could take a lot of capital to accomplish the feat.

DA Davidson on Rivian: The joint venture and capital infusion from Volkswagen could reduce per-vehicle costs for Rivian, Shlisky said in a new investor note.

The analyst cautions investors on the risk of dilution going forward.

"We don't mean to throw cold water on the situation, but this funding isn't free, with $3B of dilutive equity investment over time, some of it at a discount to the current price," he said.

The analyst also cautioned that Volkswagen remains a competitor to Rivian in the electric vehicle space, with a rugged EV SUV on the way.

"The deal is probably a net positive, but we remain NEUTRAL headed into tomorrow's Analyst Day."

Morgan Stanley on Rivian: Volkswagen's investment in the joint venture could buy valuable time for Rivian, Jonas said in an investor note.

"The bigger question is whether Rivian can genuinely improve the business, potentially turning the JV ‘first date' into something that can sustain a lasting competitive advantage," the analyst said.

Jonas estimates that Rivian needs around $8 billion in cash through 2027 and needs help making its vehicles profitable at scale.

The analyst also cautions that joint ventures in the automotive industry have a "somewhat checkered past."

"We see Rivian as uniquely positioned within autos (other than Tesla) on scaling a fully integrated software stack critical to unlocking the AI opportunity."

Stifel on Rivian: The new joint venture between Rivian and Volkswagen is a "significant positive" for Rivian, Gengaro said.

"VW will use RIVN's zonal architecture and technology stack, validating RIVN's technology," the analyst said.

The cash from Volkswagen and existing cash on the balance sheet could help fund Rivian's operations through the R2 launch and help with the Georgia factory, he said.

"Given RIVN's high-quality product, strong brand recognition, and upcoming mid-priced vehicles (R2/R3 and variants), we view the removal of the funding concerns as a very significant positive for the shares."

Piper Sandler on Rivian: A new joint venture with Volkswagen "de-risks" Rivian’s growth plan, Potter said.

"If all goes according to plan, RIVN will use this funding to construct its second factory in Georgia (among other things)," the analyst said.

The joint venture could have broad implications for the entire automotive industry, with technology and software now in focus, he said.

"New Chinese brands are moving at an unprecedented speed, and only through vertical integration can other automakers hope to keep pace."

RIVN Price Action: Rivian shares are up 27% to $15.20 on Wednesday versus a 52-week trading range of $8.26 to $28.06.

Read Next: Rivian Stock Puts Pedal To Floor As Analyst Compares EV Brand Power To Tesla

Photo courtesy of Rivian.