Rivian Shares Surge as Volkswagen Increases Its Potential Investment. Is It Too Late to Buy the Stock?

Rivian Automotive (NASDAQ: RIVN) shares jumped following news that Volkswagen (OTC: VWAGY) upped its potential investment in the electric vehicle (EV) maker after the two officially formed their joint venture (JV).

The surge in shares continues the roller-coaster ride for the stock, which has seen a number of big moves in 2024, both to the upside and downside. The stock now sits down about 50% on the year, as of this writing.

With the JV finalized, let's take a closer look at the partnership and whether it can help continue to energize Rivian's stock.

Increased investment

Volkswagen originally announced it would invest up to $5 billion in Rivian and form a JV with the EV maker back in June. With the finalization of the JV, though, Volkswagen increased its potential investment up to $5.8 billion.

Prior to the JV, Rivian had already received a $1 billion investment from the German automaker in the form of convertible notes. The debt is expected to be converted into Rivian shares by the end of this year. Half of the notes will be converted into equity at a conversion price of $10.84, while the conversion price for the remaining half will be based on the stock's 45-day volume-weighted average price (VWAP).

With the JV now up and running, Rivian will also receive $1.3 billion in cash for its contribution to the 50/50 JV. The JV was formed to help develop next-generation electrical/electronic (E/E) architecture for EVs, and Rivian will contribute its expertise and licenses for the intellectual property (IP) surrounding its electronic architecture. The company's new zonal hardware design, which helps greatly reduce costs and makes it easier to implement software updates, is one of the major technologies that the company is bringing to the table.

Meanwhile, Volkswagen will fund approximately 75% of shared platform costs within the JV through 2028, with Rivian contributing 25%. In 2029, Volkswagen will start increasing its funding in the JV by $100 million per year, lowering Rivian's shared cost.

Rivian will have the opportunity to receive another $1 billion equity investment from Volkswagen as early as next year if it reaches one of two milestones. The equity would be issued at a price based on its 30-day VWAP following the company producing two straight quarters of gross profit or two non-consecutive quarters of $50 million in gross profit. It will have up to five years to achieve this milestone, while the earliest it can achieve it will be next June.

The EV maker currently has negative gross margins but has said it will become modestly gross-margin positive in the fourth quarter following the redesign of its vehicles to take out costs and the retooling of its factories to improve line rates. As such, if the company doesn't achieve this milestone in 2025, it would be a big disappointment.

Rivian will also have the opportunity to receive an additional $2.46 billion in equity investments and loans in later years upon completing other milestones. These include successfully testing the JV's technology as well as the first commercially produced Volkswagen vehicle using the JV's technology.

Image source: Getty Images.

Is now a good time to buy Rivian stock?

The cash infusion from the investment by Volkswagen should allow Rivian to scale up production of its new, lower-cost R2 model in 2026. The R2 is a key part of its strategy moving forward, as the SUV's expected $45,000 starting price point will make it a lot more accessible to a greater number of customers.

To eventually become a profitable business, Rivian will not only need to lower the cost of the vehicles it produces, which it has done, but it will also need to scale up production. Manufacturing automobiles has a lot of high fixed costs, so scale and absorbing those fixed costs are what ultimately can lead to profitability and free cash flow down the line for Rivian.

Right now, the company is still very much in its early stages and as such is dealing with a lot of issues. This includes having only one factory, which has had to be closed at times for upgrades, as well as dealing with component shortages. As it gains size and scale, it can better deal with these type of issues.

Given its still early-stage nature, Rivian remains a speculative stock. However, it does have strong partners both in Volkswagen, as well as Amazon, which is a large shareholder. Given this strong backing and the popularity of its vehicles, investors can still consider taking a small position in the stock even after this recent jump in share price.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.