Investors want to hear about software

Investors want to hear about software
Investors want to hear about software

An electric car is no longer enough to excite Wall Street investors: Many companies are now on a level playing field when it comes to EV range, charging times and the ability to mass-produce them, leaving investors looking for something else that differentiates an EV manufacturer: software.

At the forefront of this shift in investor interest is, once again, Tesla.

This year, the slowdown in electric car sales growth has finally affected Elon Musk’s car company, so the billionaire has put the spotlight on the potential of Tesla’s software to develop a fleet of autonomous robotaxis, which would create a whole new revenue stream just as sales revenues are declining.

The plans have helped reverse a weeks-long slide in Tesla’s stock price. Musk has again touted the idea of ​​“a combination of Airbnb and Uber” that would allow owners to use their cars when they would otherwise be parked. That would help them gain value over time, the opposite of what typically happens with new vehicles.

As demand for electric vehicles declines and Tesla’s plans for a more affordable model fade away, Investors have been eyeing Musk’s software plans for the company.

“The key for Tesla stock going forward is for people to recognize that Tesla has the most undervalued AI software on the market,” Dan Ives, a longtime Tesla bull, wrote in a letter to clients.

Tesla has a robotaxi concept day scheduled for August, which Ives says will “lay the groundwork for an autonomous future.”

All aboard the train hype

It seems that Tesla’s competitors are recognizing the same phenomenon of change in the cycle of hype.

Rivian, which has faced its own problems with a falling share price and disappointing financial results, is now riding high after announcing a software collaboration with Volkswagen.

The companies said Volkswagen will make an initial $1 billion investment in Rivian as part of a software development deal. This is Rivian’s second joint venture with a major automaker since it burst onto the scene a few years ago.

The first was a $500 million investment by Ford to build electric vehicles. Rivian announced it before production even began, but that deal ultimately fell through and the companies never built a car together.

Now, looking ahead to the second generation of its range of pickup trucks and SUVs, Rivian joins forces with Volkswagen to manufacture the brain of the vehicle. Having lost its post-IPO luster, Rivian has struggled to boost its share price in recent years despite strong demand for its cars and a positive reception to redesigns and new models announced earlier this year.

In a sign that the train of the hype has shifted from electric vehicles to the software that powers them, Rivian shares jumped 49% in trading after the VW deal was announced.

Electric vehicle startups have always followed Wall Street’s interests to raise money

Partnerships like the one between Rivian and Volkswagen have become commonplace in recent years, and while the content of these deals often changes, the motivation remains the same.

The day after Rivian and Volkswagen announced the partnership, Bank of America analyst John Murphy, praised the deal as a smart move to raise money for Rivian.

Murphy said the deal, totaling $5 billion in VW investment over time, will help Rivian fund production of the R2 line in Normal, Il., as well as a second factory in Georgia that will house the R3 vehicle platform.

“We have assumed that Rivian would need to raise additional capital, and VW’s investment in Rivian will prove valuable in helping it achieve the necessary scale and become cash flow positive,” Murphy wrote.

While Volkswagen’s share price hasn’t enjoyed the same triumphant ride as Rivian’s, investors are pleased to see the German automaker focusing on improving its software development programs.

JP Morgan analyst José Asumendi described the collaboration as “a positive step in the right direction to accelerate the VW Group’s transition to becoming a more agile entity.”

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