Shares of Rivian Automotive (NASDAQ: RIVN) were still surging on Wednesday afternoon, after the company announced the closing of a deal with Volkswagen that could be worth well over $5 billion to the electric vehicle (EV) maker.
As of 1:30 p.m. ET, Rivian's shares were up about 18.3% from Tuesday's closing price.
A deal that should greatly ease Rivian investors' minds
Under the deal, first outlined in June, Rivian and Volkswagen have created a joint venture to develop and commercialize Rivian's so-called "zonal" EV architecture. The zonal architecture, set to be implemented in Rivian's upcoming R2 SUV, can provide an extremely flexible technical basis for EVs of different sizes and price points. Among automakers outside of China, only Tesla has something similar.
Rivian's next model is the midsize R2, due in 2026. Image source: Rivian.
The joint venture will develop the architecture into something that can underpin a series of upcoming new EVs from brands in the Volkswagen group. The deal provides for a series of payments from Volkswagen to Rivian as key milestones are met, plus an option for a $1 billion loan that brings the total potential value of the deal to about $5.8 billion by early 2028.
Volkswagen will receive shares of Rivian in return for most of these payments. But for Rivian shareholders, any concerns about dilution should be more than offset by the security that VW's incoming cash will provide for the California EV maker.
Rivian has a funded path to profitability
Here's the key takeaway for Rivian investors: This deal makes it more likely that Rivian will have the cash to get to sustainable scale, no matter what happens in the U.S. political arena.
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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
