02:03 PM EDT, 07/01/2024 (MT Newswires) -- Rivian Automotive's ( RIVN ) joint venture with German car manufacturer Volkswagen Group is expected to provide the US electric vehicle maker with additional liquidity to help it get through 2027, though Rivian likely remains a "show-me story," RBC Capital Markets said Monday.
On Tuesday, the companies said they planned to form a joint venture to create new software-defined vehicle platforms, to be used in their future EVs. Volkswagen planned to invest up to $5 billion in Rivian. The deal will bring $2 billion of incremental liquidity to Rivian, with the remaining $3 billion subject to the company hitting certain financial and technical milestones, RBC said in a note to clients.
RBC analyst Tom Narayan said that $2 billion "in increased liquidity from (Volkswagen) should help Rivian bridge to R2 and 2027." The $2 billion in liquidity gives the brokerage more confidence that Rivian can get to deliveries of its R2 midsize sport utility vehicles, the analyst wrote. "That said, we still think Rivian is a show-me story."
The brokerage raised its price target on the Rivian stock to $14 from $11, with a sector perform rating. The company's shares were up 5.7% in Monday afternoon trade.
"A topic that has come up a great deal from investors concerns whether (Volkswagen) is really committed to its Scout program, which is planned to compete head on against Rivian," Narayan said. Although Volkswagen "firmly asserts" its plans are still intact, the planned Rivian investment provides Volkswagen optionality should the Scout program be unsuccessful, according to the note.
"We do think (Volkswagen) opted for taking equity stakes in Rivian in order to get the JV deal done for software instead of having to pay licensing fees on a per-car basis," the analyst said. "We think Rivian hopes the relationship can expand the current narrowly defined collaboration for software-defined vehicle attributes."
Rivian expects positive gross profit in the fourth quarter of 2024, Chief Financial Officer Claire McDonough said during the company's investor day Thursday, according to a Capital IQ transcript. "We continue to be laser-focused on driving to positive gross profit this year and ensuring the start of production of our R2 platform in the first half of 2026 as well," McDonough told analysts.
Positive gross profit by the fourth quarter would be "a major proof point" for Rivian's management, especially considering the EV maker lost $38,784 per vehicle delivered in the first quarter, Narayan said.
Price: 14.14, Change: +0.72, Percent Change: +5.33
