Electric vehicle (EV) maker Fisker served a stark reminder to investors that not all start-up EV companies will survive the early innings of this long-term transition in the automotive industry. Fisker had many problems including vehicle issues, poor management, and production hiccups. Most of all, the company's operations failed to lure in major backers and investors -- a problem Rivian(NASDAQ: RIVN) and Lucid(NASDAQ: LCID) currently don't have.
A German helping hand for Rivian
When a young automaker could use a helping hand developing EV technology and funding operations, few options are better than Volkswagen(OTC: VWAGY), one of the largest automakers on the planet by production volume.
That's exactly what happened when Volkswagen agreed to invest up to $5 billion in Rivian to create an equally controlled joint venture to share and develop EV architecture and software, which initially sent shares of Rivian roughly 50% higher.
This investment will come in stages, with Volkswagen immediately investing $1 billion in Rivian through a note that will convert to stock on Dec. 1. Then, following that initial investment, Volkswagen will make a $1 billion payment at the inception of the joint venture later this year, and will invest another $1 billion in Rivian stock inn2025 and 2026, while also providing a $1 billion loan in 2026.
But this investment is about more than just the dollars Rivian is bringing in, although that certainly helps push its cash runway out to the launch of its R2 crossover, as well as the following R3 and R3X. The German investment will also help Rivian cut costs by leveraging larger volumes of key supplies including chips and other components, which will be instrumental in Rivian generating positive gross profits during the fourth quarter.
Perhaps most importantly, and also largely overlooked by investors, is that this partnership could lead Rivian's introduction into Europe and eventually Asia. Don't forget that Rivian already has a few hundred electric delivery vans operating in Germany. Volkswagen also benefits as the company has struggled to develop software on the level of Rivian, a competitive edge that Rivian hopes it can grow in the years ahead.
Rivian wasn't the only start-up EV maker doing well enough to attract major investors. Lucid continues to prove its relationship with Saudi Arabia's backing is strong.
Enter the PIF for Lucid
Lucid has found out what many young automakers learn: Developing vehicles is challenging, expensive, and the industry has many outside variables not under the control of management. But what Lucid has also found, and what Fisker didn't, is deep pockets from an oil-rich country looking to hedge its future with electric vehicles.
Lucid announced in early August that an affiliate of Saudi Arabia's Public Investment Fund (PIF) will provide another cash infusion of up to $1.5 billion, which should keep the young EV maker funded into the fourth quarter of 2025 at least.
The backing of the PIF -- which invested a separate $1 billion as recently as March -- is absolutely critical for Lucid despite its compelling and well-designed Air sedan, because the company continues to burn through hundreds of millions of dollars quarterly to cover massive operating costs and a low volume of deliveries. Over the past several years the PIF has invested roughly $8 billion and owns a 60% stake in the young EV maker.
The hope is that PIF's seemingly endless backing and financial support will enable Lucid to deliver not only its upcoming Gravity electric SUV -- which the young EV maker believes will bring in a much larger consumer base -- but also its third model that will be a mid-size electric SUV. The SUV could be named Lucid Earth, based on trademarks filed by the automaker, with a price target of around $50,000 -- more affordable than the Air sedan, which can reach price tags well over $200,000.
Fisker's failure
Fisker shuttered its doors and filed for bankruptcy protection because the company's operations ultimately failed to convince major investors or other automakers to support its business vision. Thankfully for long-term investors of Rivian and Lucid, both young start-up EV makers have proven to large entities their future has merit and a chance to ride the automotive industry's EV transformation for years to come. That's why Rivian and Lucid will succeed where Fisker failed.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
