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Rivian spikes premarket after VW unveils plan to invest up to $5 bn in EV start-up

Investing.com -- Shares in Rivian (NASDAQ:RIVN) leapt in premarket U.S. trading after Germany's Volkswagen (ETR:VOWG_p) announced a major investment plan in the American high-end electric truck group.

The partnership, which could see VW provide Rivian with as much as $5 billion in capital, aims to form a 50/50 joint venture for sharing knowledge on electric vehicle architecture and software. If the tie-up is completed, Volkswagen will gain "immediate access" to Rivian's current EV technology.

However, the joint venture's establishment depends on several factors, including technical feasibility reviews, further negotiations, regulatory approvals, and achieving certain milestones. A final decision is still pending.

"This partnership brings Rivian’s software and zonal electronics platform to a broader market through Volkswagen Group’s global reach and scale," said Rivian Chief Executive RJ Scaringe in a post on X.

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For Rivian, Volkswagen's funding provides some much needed financing for a firm that has been hit by sluggish demand and an uptick in costs due to elevated interest rates.

Hype around EV start-ups fueled a sharp jump in Rivian's shares after its initial public offering in 2021 that pushed its market value above VW's at one point. But the stock has since retreated, slipping by around 90%.

In a note to clients, analysts at Canaccord Genuity said the announcement will be a source of "giant relief" for Rivian investors, allowing the business to fund its operations as it races to bring its R2 sport-utility vehicle to market in 2026. California-based Rivian is working to produce its new R3 and R3X crossover models as well.

The cash infusion from VW joint venture will also aid Rivian as it looks to become free cash flow positive, the Canaccord Genuity analysts added. In the first quarter of 2024, Rivian lost over $1.4 billion.

Meanwhile, the move comes as VW looks to bolster its EV offerings during a time of intensifying competition from burgeoning rivals in China.

"New Chinese brands are moving at an unprecedented speed, and only through vertical integration can other automakers hope to keep pace," analysts at Piper Sandler said in a note.

Oliver Gray contributed to this report.

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