Rivian (NASDAQ:RIVN) investors got a much-needed boost this week. In a move that took Wall Street by surprise, Volkswagen announced on Tuesday that it will invest $1 billion into Rivian’s equity annually over 2024, 2025, and 2026. Additionally, the auto giant will contribute another $2 billion ($1 billion in equity and $1 billion as a loan) to a new joint venture (JV) with the company. The partnership aims to develop next-generation electrical architectures and related software for future EVs, with Rivian making its tech available to VW.
J.P. Morgan analyst Ryan Brinkman views this investment favorably, noting that it likely replaces external capital Rivian would have otherwise needed to raise, thereby reducing uncertainty regarding the company’s funding path. In fact, Brinkman thinks investors are likely to see this factor as the biggest plus of the deal.
That’s not necessarily Brinkman’s take, who thinks the larger long-term implications likely stem from the JV, on account of several reasons as it: “(1) validates existing Rivian technology (as evidenced by Rivian contributing only its technology to the JV vs. VW $1 bn); (2) implies a reduction in future operating expense (with Rivian in the future likely paying into the JV an amount less than it would have otherwise spent to develop its electrical architectures on its own, including given the initial capital contribution from VW); (3) may help reduce execution risk (given VW’s appointing of key operating personnel); and (4) implies a reduction in future COGS (given the purchasing cost benefits associated with leveraging of VW’s much greater scale when negotiating prices with suppliers).”
So, does this change Brinkman’s rather downbeat view of Rivian’s prospects prior to the announcement? The answer is a little, but nothing that causes a sea change.
The funding uncertainty removed over the short-term, and given “lower execution risk and likely lower operating costs and purchased COGS long-term,” are reasons why Brinkman has shifted his price target from $10 to $14.
Yet, due to what Brinkman perceives as a challenging environment for EVs, marked by overcapacity, deflationary pricing, and a slower-than-expected rate of consumer adoption, in addition to a “valuation which appears generous,” the analyst’s rating stays an Underweight (i.e., Sell) for now. (To watch Brinkman’s track record, click here)
Brinkman, though, is almost on his own here. With 12 Buy recommendations, 9 Holds and just 2 Sells, the stock has a Moderate Buy consensus rating. However, going by the $14.52 average price target, the shares will stay rangebound for the time being. (See Rivian stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
