Rivian-Volkswagen Deal Strengthens Finances, Yet EV Market Risks Remain: Goldman Sachs

Zinger Key Points
  • Rivian and Volkswagen's joint venture targets $5.8 billion in investments by 2027.
  • Analyst raises Rivian's price target to $12, citing improved liquidity and JV benefits.

Goldman Sachs analyst Mark Delaney maintained a neutral rating on Rivian Automotive Inc. RIVN and raised the price target from $10 to $12.

Following the market close on November 12, 2024, Rivian Automotive and Volkswagen AG VWAGY confirmed the official launch of their 50-50 joint venture (JV), set to begin on November 13.

The JV will focus on advancing electrical and electronic (E/E) architecture technology, explicitly targeting electronic control units (ECUs), network infrastructure, and associated software.

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Both companies will continue to develop vehicles independently, excluding areas like battery technology, powertrains, and autonomous driving systems from the collaboration.

The JV plans to leverage Rivian's existing software and E/E architecture stack. Rivian's R2 model, slated for production in the first half of 2026, will be the first vehicle to utilize this platform, with Volkswagen expected to implement it in their vehicles by 2027. An initial demonstration model, a retrofitted VW vehicle showcasing Rivian's technology, has already been developed as part of this collaboration.

The JV agreement outlines an increased total investment of up to $5.8 billion by 2027, revised upward from the initial $5 billion. Rivian's Chief Software Officer, Wassym Bensaid, and Volkswagen's Chief Technology Engineer, Carsten Helbing, will lead the initiative.

Although both companies will contribute staff, Rivian will initially provide most personnel.

Rivian received $1 billion through a convertible note at the JV's inception. With the JV now operational, Volkswagen has committed an additional $1.3 billion to Rivian for background IP licenses and a 50% equity stake.

The remaining investment, up to $3.5 billion, will be contingent on achieving specific milestones: $1 billion linked to financial performance, $1.5 billion tied to technical and operational benchmarks, and $1 billion structured as loans with time-based disbursements.

Under the agreement, through 2028, Rivian will cover 25% of shared platform costs, while Volkswagen will handle 75%. Starting in 2029, the partners will split expenses evenly, with Volkswagen providing an extra $100 million annually to reduce Rivian's financial burden.

Rivian expects the capital from Volkswagen and its existing liquidity to be sufficient to support operations through the production ramp of the R2 model in Normal, Illinois, and future midsize platforms in Georgia.

Analyst Delaney views the joint venture as a positive development for Rivian, significantly improving its balance sheet and liquidity without additional stock dilution.

Delaney stated that the deal highlights the strategic value of Rivian's technology platform, particularly in software and services, as emphasized in the recent "Platforms & Power" report.

Despite these positives, the analyst maintains a Neutral rating on Rivian shares, citing a challenging competitive landscape, uncertainties around EV demand, and policy risks in the U.S. market.

Following the announcement, Delaney updated his financial estimates for Rivian, accounting for reduced operating expenses and an adjusted share count balanced against expected equity method losses from the JV.

The revised EPS forecasts, including stock-based compensation (SBC), are—$4.49 for 2024,—$3.10 for 2025, and—$3.00 for 2026, reflecting slight improvements from prior estimates. Excluding SBC, the EPS projections stand at—$3.77 for 2024,—$2.35 for 2025, and—$2.20 for 2026.

The analyst also raised Rivian's 12-month price target, citing improved free cash flow and a stronger balance sheet. The valuation now applies a 2.5x multiple on projected Q5-Q8 revenue, up from the previous 2x multiple.

Wedbush analysts, led by Dan Ives, view Volkswagen's increased $5.8 billion investment in Rivian as a pivotal boost for the EV maker. They believe the joint venture marks a crucial step toward stabilizing Rivian's finances and enhancing production capabilities.

The partnership aims to strengthen Rivian's capital position, supporting its software and electrical systems integration.

Analysts expect the additional funding to back the R2 production ramp and development at the Georgia facility while the market remains focused on Rivian's execution and profitability goals for the R1 model.

Price Action: RIVN stock is down 11% at $10.71 at the last check on Thursday.

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