Shares of Rivian Automotive (RIVN +0.66%) skyrocketed today after the company announced a new joint venture with Volkswagen AG for vehicle software, which includes a $1 billion investment in Rivian by the German automaker, with plans to invest up to $5 billion.
The injection of cash into Rivian comes as the company is cutting costs and carving out its niche in the nascent electric vehicle (EV) market. Investors were thrilled with the news of the joint venture and pushed Rivian's share price up 26.6% as of 11:56 a.m. ET on Wednesday.
The right venture at the right time
The joint venture will give VW much-needed software for its vehicles in the coming years, while providing Rivian with cash that it needs right now.
Rivian recently went on a cost-cutting spree by pausing construction of a new factory in Georgia -- saving the company $2 billion -- and eliminating unnecessary parts from its vehicles through significant re-engineering. The result of the retooling will lower Rivian's EV van costs by 35% and the figures for its other vehicles by nearly as much, CEO R.J. Scaringe said.
NASDAQ: RIVN
Key Data Points
Those cost-cutting measures will allow Rivian to post its first gross profit by the end of the year, according to management. And now, with an injection of cash from VW, the company should be on even more solid financial footing than before.
The amount VW will invest in the joint venture is $2 billion, with the German automaker also planning to purchase a $3 billion stake in Rivian over the next several years, according to The Wall Street Journal.
A net benefit for Rivian
In addition to VW's investment, the EV maker will benefit from spreading out the cost of developing its software among more vehicles. Rivian's leadership said in a press release that the venture will "allow both companies to combine their complementary strengths and lower cost per vehicle by increasing scale and speeding up innovation globally."
With VW's cash and the potential for lower production costs from the joint venture, Rivian investors are hoping that the company can reduce its losses, which totaled $5.4 billion in 2023.
Investors will get even more insight into how Rivian is doing when the company holds its Investor Day tomorrow, June 26.
