Rivian Automotive saw a remarkable 36% surge in premarket trading on Wednesday following news of a substantial $5 billion investment from Volkswagen, bolstering the struggling startup’s ability to expand production amidst a slowing electric-vehicle market.
The investment not only injects much-needed capital into Rivian’s coffers but also advances its goal of achieving profitability on a gross margin basis later this year, crucial for competing in a market currently dominated by Tesla.
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“This is a significant vote of confidence in Rivian’s future prospects,” remarked Susannah Streeter, head of money and markets at Hargreaves Lansdown. “Collaborating in this manner could potentially drive down costs per vehicle and strengthen defenses against the rising influence of Chinese EV manufacturers.”
While Rivian celebrated, the news dealt a blow to Aptiv, a key auto parts and software supplier. Piper Sandler downgraded Aptiv from “neutral” to “underweight,” citing concerns over the diminishing role of third-party software in vehicles as evidenced by Volkswagen’s strategic move towards Rivian’s electrical architecture and software platforms.
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Should Rivian maintain its gains throughout Wednesday, the surge would add more than $4 billion to its market capitalization, following a previous close at $12 billion. The company had endured a turbulent year, losing nearly half its market value after announcing in February a halt in vehicle production for 2024.
Rivian’s decision to terminate previous partnerships with Ford in 2021 and Mercedes Benz in 2022 had raised doubts, but Volkswagen’s substantial investment now paves the way for Rivian to forge ahead with plans to develop its more affordable R2 SUVs and upcoming R3 crossovers.