Rivian Automotive Inc. (NASDAQ: RIVN) entered into a deal with Volkswagen (VW), a move that has sparked a lot of chatter in the electric vehicle market. The $5 billion deal, after an initial $1 billion investment, aims to codevelop software platforms for both companies’ electric vehicles, providing Rivian with much-needed financial support and leveraging VW’s extensive manufacturing capabilities and global reach.
On the other hand, VW, one of the largest automotive giants, will receive access to cutting-edge software expertise. In an interview with CNBC, Cyrus Mewawalla, head of thematic intelligence at GlobalData, shared that Volkswagen has fallen behind in two critical areas: on electric vehicles and autonomous driving and other software within the car. Rivian is strong on both.
For many, this partnership sounds like a match made in heaven. However, EV market analysts believe this deal could be masking some underlying issues.
One of these underlying issues in the EV market that analysts are concerned about is the ongoing demand problem for EVs. Rivian has been experiencing numerous delays, despite the company having one of the best designs in the market.
In the second quarter, Rivian produced 13,790 EVs, a mere 1.5% increase from what it achieved in the first quarter. The company still believes it will be able to make about 57,000 units by the end of the year. Analysts believe production has worsened because of the rise in electricity prices and the high upfront cost of EV purchasing. This is also the reason why giant EV makers, such as Tesla, Lucid, BYD and others, have resorted to slashing prices for their models.
This VW deal could help Rivian achieve its goal but won’t guarantee dominance in the EV market. What’s more, the deal with VW will help overcome the significant financial struggles Rivian has been experiencing lately due to limited deliveries and operational losses. As of March 2024, the company had $7.85 billion in cash, which is far less than what it had at the same time last year, which was $11.78 billion. Reports also show that the company’s stock has dropped by 50% this year, signifying that all is not well. Therefore, a partnership with VW is a much-needed lifeline that could see things turn around for the company and its investors.
Additionally, the deal between the two companies has caused analysts to question the future of VW’s electric vehicle strategy. The German automobile manufacturer had plans to transition to electric vehicles but had been met with software glitches that put the company behind the curve. This partnership with Rivian means that the company needs assistance from experts to help catch up with giants such as Tesla.
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