Volkswagen is playing white knight to Rivian. Is $5 billion in new cash enough to turn Rivian stock into a buy?
Rivian Automotive (RIVN -1.83%) investors got some great news on Tuesday. Rivian and Volkswagen (VWAGY -0.42%) announced they will form a joint venture (JV) that will marry Rivian technology to Volkswagen cash — as much as $5 billion that Rivian can use to keep operating as it completes development of its widely anticipated R2 electric SUV and R3 electric car.
Wall Street is applauding the JV. And on Wednesday, one analyst — Cantor Fitzgerald — raised its price target on Rivian stock to $20 a share. That implies a 36% price jump over the next 12 months.
Rivian + Volkswagen = what?
But is the news as good as all that?
It might be, yes. Rivian’s contribution to the joint venture will take the form of intellectual property, its electric vehicle (EV) software, and “electrical architecture expertise.” Volkswagen’s contribution will be cold, hard cash:
- A $1 billion unsecured loan, convertible into stock.
- Two more $1 billion installments, invested in Rivian in 2025 and 2026.
- And $2 billion in cash and loans invested in the JV.
Assuming any work done at the JV will advance Rivian’s own EV projects, that’s $5 billion in new money for Rivian — enough to cover nearly a year’s cash burn. Combined with the $7.9 billion Rivian already has, that should be enough to keep the company in business until its first R2 electric SUVs start rolling off the production line in 2026.
Is Rivian stock a buy?
Rivian shares cost less than $12 before the announcement Tuesday evening, and opened 36.5% higher Wednesday morning — so a lot of the profit on this Rivian bet has already been made. Still, there’s a very respectable profit to be made if Cantor Fitzgerald is right about its $20 price target.
I wouldn’t be too quick to assume it is right, though. Cantor is valuing Rivian at nearly 4x trailing sales — 20x its own valuation — despite Rivian still being unprofitable. The fact that Rivian will soon be sharing half its JV revenue with Volkswagen will make profitability that much harder to achieve.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
