Share prices of Rivian(NASDAQ: RIVN) surged higher after the maker of electric vehicles (EV) received a sizeable investment from German automaker Volkswagen(OTC: VWAGY). Despite the recent price gains, the stock is still down nearly 43% in 2024.
Let’s look at the importance of this investment, how it could help Rivian, and if it is too late to buy the stock.
Volkswagen investment
Volkswagen announced it will invest up to $5 billion in Rivian over three years as well as form a 50/50 joint venture (JV) between the companies. Volkswagen will initially invest $1 billion in the company in the form of a convertible note, which will convert to Rivian shares once it receives regulatory approvals, but not before Dec. 1, 2024.
If the JV is approved, the German automaker would look to invest another $4 billion into Rivian or the JV by 2026, including another $1 billion this year upon the implementation of the JV. The purpose of the JV will be to develop next-generation electrical/electronic (E/E) architecture for EVs.
For the JV, Rivian will contribute its expertise in the field of electronic architecture for software-defined vehicles and the associated IP via a fully paid-up license. The formation of the JV will also allow Volkswagen to use Rivian’s current electronic architecture in its own vehicles, which includes its new zonal hardware design.
For Volkswagen, the deal brings with it immediate access to much-needed technology to develop its next generation of EVs. Rivian is one of the few non-Chinese automakers outside of Tesla so far to develop zonal architecture.
For Rivian, meanwhile, this is a huge cash infusion that will allow the company to continue to scale its business. Along with the current $7.9 billion in cash on its balance sheet, this should give Rivian ample room to ramp up production of its lower-priced R2 SUV models at its Illinois plant, as well as build out its planned $5 billion manufacturing campus in Georgia, which it temporarily paused construction on earlier this year.
Volkswagen will also lend some of its manufacturing expertise, which can help Rivian continue to cut manufacturing costs. Rivian has done a great job creating popular luxury electric SUVs, but it has not been able to sell them for a profit, losing money on each vehicle it sells. At its investor day following the Volkswagen announcement, the company spent much of its time discussing reducing the costs of its vehicles so it could obtain a positive gross margin.
The company reiterated its forecast to be near a positive gross margin in the fourth quarter, and it set a long-term target of a 25% gross margin. It is also looking for a 10% free cash flow margin and a high-teens adjusted profit margin over the long term.
Image source: Getty Images.
Is it too late to buy the stock?
The Volkswagen investment, if the JV is approved, should give Rivian the cash it needs to scale its business and make it viable. Negative gross margins and cash flow have been its biggest issues, but the company has made aggressive steps to reduce the cost of its vehicles and improve its manufacturing process.
The development of its zonal architecture, meanwhile, has not only greatly improved the cost structure of its vehicles, but has also proven to be a highly valuable technology that Volkswagen was willing to pay a lot of money to get access to for use in its vehicles.
The deal now gives Rivian two very large powerful investors and partners in Volkswagen and Amazon, for whom it has a deal in place to make Amazon’s electric van fleet.
Rivian remains a high-risk/high-reward stock given its early-stage nature and still negative gross margin. However, the deal with Volkswagen helped remove a lot of the liquidity risk associated with the company. As such, the stock looks more attractive from a risk-reward basis after its recent run-up than before the deal.
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
