10:53 AM EST, 11/13/2024 (MT Newswires) -- Rivian Automotive's ( RIVN ) upsized joint venture deal with German car manufacturer Volkswagen Group is a step in the right direction for the US electric vehicle maker, with transaction terms better than some had feared, according to analysts.

Late Tuesday, the companies said Volkswagen will now invest up to $5.8 billion in Rivian and their new joint venture by 2027, up from the previous plan for a $5 billion investment. In June, the auto manufacturers announced their agreement to collaborate to create new software-defined vehicle platforms, to be used in their future EVs.

The venture, called Rivian and VW Group Technology, was expected to launch Wednesday, according to the companies. Rivian's shares surged 17% intraday.

Wedbush Securities expects this investment to support future growth at Rivian, which will likely integrate its software platform and electrical architecture, achieve cost savings and deliver improved vehicles. The partnership is expected to fund Rivian's R2 vehicle ramp and manufacturing plant in Georgia, a key move for the company, Wedbush said in a Wednesday client note.

"After seeing lots of choppiness and pain points in the supply chain in the past year, we believe this is the right partner announcement coming in at the right time as (Rivian) looks to navigate the ship in stormy waters with sufficient capital to fund its EV roadmap over the coming years," Wedbush analysts led by Daniel Ives wrote in the note. The brokerage maintained its outperform rating on the EV maker's stock.

The companies said an initial investment of a $1 billion convertible note has already been made by Volkswagen. The German company will pay about $1.3 billion for background IP licenses and a 50% stake in the venture, which will operate as an independent company. The remaining $3.5 billion is expected to come in the form of equity, convertible notes and debt, subject to the achievement of milestones. "Further investments are tied to clear operational, technical, and financial milestones," according to the joint statement.

RBC Capital Markets said that the deal terms "sound far better than some had feared."

"Each milestone is independent so there is no worry as some had that if Rivian missed an early milestone that it might miss getting subsequent cash from (Volkswagen) on future milestones," RBC Analyst Tom Narayan said in a separate note emailed Wednesday. "We view the deal as a less expensive way for (Volkswagen) to finance its (software defined vehicle) architecture goals and for Rivian to receive funding to get to its R2 launch."

RBC has a sector perform rating on Rivian's stock.

Price: 12.15, Change: +1.57, Percent Change: +14.79