The electric vehicle manufacturer Rivian soars on the stock market in the heat of the agreement with Volkswagen | Financial markets

Volkswagen’s decision to invest $5 billion (around €4.6 billion) in a joint venture with Rivian Automotive has been a boon for the US electric vehicle manufacturer’s stock: after closing on Tuesday with an 8.6% gain, in pre-market trading on Wall Street on Wednesday it was up nearly 40%. The agreement, which includes the acquisition of part of the shares by the German group for €1 billion, is a financial relief for the American company, which has been burdened in recent months by its problems in increasing its production and deliveries of vehicles.

The union of both companies seeks to create vehicles defined by software (SDV, in the jargon), with systems applicable to the models produced by both groups. SDVs are defined as vehicles whose functionalities are channeled mainly through computer programs, rather than through their hardware, their physical parts.

Thus, Volkswagen takes advantage of the technology developed by Rivian, with more experience in electric vehicles. The German automobile giant sees this agreement as an opportunity to “reduce the total costs” of the development of these technologies, Citi points out in a report, where they regret the delay: “We believe that VW should have started much earlier with a collaborative approach , which would have saved billions in R&D expenses and could have led to a better-tech product.” The American bank trusts, however, in the German group and recommends its purchase.

“Software has been a challenge for Volkswagen in recent years,” note the UBS analysts: “Therefore, investment and joint venture with Rivian, a company that has demonstrated specialization in this field, they should strengthen VW’s future product and (in theory) reduce development costs and risks.” Although they warn: it remains to be seen to what extent Rivian’s startup culture is integrated into a superstructure like that of the German group.

Analysts wonder what Volkswagen is going to do with other investments in companies in the electrical sector if this union becomes the German company’s new center of competence for this segment. Could it consider cutting its 5 billion investment in the American company Scout or in Cariad? “There are still no clear answers on this, but our view is that the five-year global investment budget of €170 billion is unlikely to be reduced due to the announced agreement; In any case, the $5 billion between now and 2026 could be added to that,” they conclude from UBS, which recommends the sale of shares of the German group.

For Rivian, the agreement is fundamentally an oxygen cylinder. So far this year, and before this agreement, the American manufacturer had lost more than 40% of its value. Five years ago, its stock was around 130 dollars, far from the 12 at which it was trading before the opening of the stock market in the United States. In its last two quarterly reports, the company has fallen short of the earnings per share that the market expected.

All in all, the market is optimistic about the electric vehicle company: 60% of the consensus collected by Bloomberg recommends its purchase, while 32% are committed to keeping the stock in the portfolio. The remaining 8% are committed to selling their shares. Analysts give a one-year target price of $15, or in other words, a potential return of 26% on its price at the close of this Tuesday.

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