Volkswagen joint venture lets Rivian to 'fight another day'

Volkswagen (VOW3.DE, VWAGY) is committing to invest up to $5 billion into EV maker Rivian (RIVN) in a joint venture to build out software for both auto makers' electric vehicles. Rivian shares are up nearly 40% over the past couple trading days on this news.

Yahoo Finance's Catalysts welcomes RBC Capital Markets Global Autos Analyst Tom Narayan to talk about why this is "great news" for Rivian as this injection will allow Rivian to "fight another day" Despite this recent tailwind, Rivian's stock is still down 27% year-to-date.

"They both said it very clearly, 'We're operating totally independently, we're competing head-on with each other,'" Narayan says about the joint venture. "Remember, VW has that Scout brand that they're going to launch in the US that competes with the Rivian. So I think it may be okay because it's such a narrowly focused endeavor. [It's] just software... for the specific purpose."

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This post was written by Luke Carberry Mogan.

Transcription de la vidéo

Turn now to Rivian is one of the top 20 checkers on Yahoo Finance.

Today shares are surging.

Look at that I just about 30% the move higher coming on the use of Volkswagen saying that it's going to invest up to $5 billion into the EV maker as part of a software development partnership.

Now R shares are down almost 50% so far this year.

So we wanna put that in perspective for you.

But could this be a major catalyst for the EV maker?

And also what does this tell us about VWs ambitions?

We wanna bring in Tom Narayan, he's RB C's Global Autos analyst.

So Tom, we can clearly see the excitement play out on the street when you take a look at the pop that we're seeing and shares of Vivian.

And I'm curious though what your first reaction is to this partnership.

Yeah, the first reaction is obviously this is great for Caribbean, right?

They get a cash infusion that kind of lets them fight another day, takes them to R two a couple of years, it lasts longer.

Uh The question is what this really is for for VW.

Um and that's ultimately questionnaire.

They've had their own challenges with software.

Do we understand how doing AJ V like this?

Uh They get to use some software that's already up and running some labor from Rian that's already there and they only have to pay, uh you know, uh 2 billion into the JV.

The question is why do you then need to buy $3 billion worth of Rivian stock though?

We suspect that's part of the deal to get it done.

Maybe they see some upside in Rivian shares uh just like many investors clearly do today.

But that's really where the question has been coming in here.

Like what is really in it for VW to spend 5 billion?

Why did they need a big stake in rib?

And if all they needed was software of, you know, a 2 billion contribution?

But for Rian, this is obviously a great news.

It doesn't necessarily answer the question of will they be able to get the profitability on their car business, etcetera?

But it lets them fight another day.

OK.

So if it lets them fight another day, that's really interesting to me because if you look at the details of this deal, it says something like up to 5 billion, right?

So there's a little bit of a potential out for VW here given that, do you think that that up to 5 billion is kind of a drop in the bucket or is it something substantial that to your point VW kind of needed.

Um Well, Caribbean, yeah, that for them, they definitely needed the cash.

Uh I think they lost something like 5 billion this past year and they have 9 billion of liquidity.

So if you keep losing that amount, then you run out of cash.

Um So they're getting 3 billion of a cash infusion from VW.

The other 2 billion just goes into the JV.

Um So it let some kind of last a little longer.

Uh I think that's the way to look at this, but certainly if they don't reach profitability and they keep losing cash, billions of dollars, it's really more of extending the life of the company.

Um and their, and their endeavors.

Uh they're losing what, $38,000 per car they lost last quarter.

So as long as that keeps happening, uh it doesn't matter how much cash you keep putting in it, it, it, you know, they keep losing it.

And the other point I would make is I don't think VW would come in and use more cash.

I think this is a one and done type situation.

Um It's happening like you said, over many couple of years.

Um I think in the event, Rivian doesn't work out, I think VW would just take out this JV and use it on its own, you know.

Uh So I think that's the way to, to put things in context.

Tom, I think a lot of people are asking, I guess how confident they are that this partnership is ultimately going to work.

We've seen failed partnerships, especially with the Auto space in the past, just given the merging that we're going to see of cultures and how various companies do things.

Uh How confident are you that this is actually going to work out well for, for both companies involved?

It's a good question.

Uh I don't have, uh you know, either way, 3 50 50 I guess like the JV.

Uh but I, but I do think ultimately remember this is a, it's actually when you read the, the uh press release and you listen to the two calls, the two companies held yesterday, it's actually very narrowly defined structure.

It's just software.

There's some Rivian head count and there's some cash to pay them.

So I think they're intentionally keeping it very narrow and they both said it very clearly.

We're operating totally independently.

We're competing, head on with each other.

Remember VW has that scout brand that they're going to launch in the US that competes with the Rivian.

So I think it may be OK because it's such a narrowly focused endeavor.

Uh just software, you know, for the specific purpose.

It's not like the two are merging or Volkswagens buying Rivian or something like that.

If that was happening, then you'd have the culture dynamic.

Uh So, yeah, I think it could work because it's so narrowly defined I want to end by asking you, does either company here stand to be better fit as a competitor to Tesla off the heels of this deal?

Um I don't know if I would look at it in that context.

Uh I, I think what this basically does is it gives a cash infusion to Rivian so we can fight another day for Volkswagen.

They've had software challenges uh and it basically gets them there quicker instead of having to do it in house with the challenged internal uh software arm that they have.

You know, I think that's, that's all this is just 20 Ems who have their own issues.

And there's a complementary dynamic here with a very narrowly focused uh JV structure.

All right, Tom Na Ryan, always great to get your insight.

Thanks so much for having on with us this morning.

RBZS Global Autos Analyst.

Thanks Tom.