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The electric vehicle sector is still buzzing over the announcement of a partnership between Volkswagen (OTCPK:VLKAF) and Rivian Automotive (NASDAQ:RIVN).
Volkswagen (OTCPK:VLKAF) is believed to have pulled the trigger on the deal with Rivian (RIVN) considered one of the few companies near Tesla (TSLA) on the tech/design side for operating system/software. Morgan Stanley analyst Adam Jonas noted that Rivian (RIVN) investors may want the Volkswagen (OTCPK:VLKAF) relationship to go much further than plugging short-term cash flow gaps. "If the VW JV is just a new way to bring yet more capital into Rivian without changes to the strategy/capital discipline profile of the company, then investors should prepare for the challenges to continue," he warned. However, Jonas and his team think that if the VW deal is a prelude to a potential change in strategy or structure, then new paths of optionality may open up.
For investors, Rivian's (RIVN) strategic value is seen as greater than its discounted cash flow value. Jonas said it would have been unlikely that Rivian (RIVN) could have obtained $5 billion from Volkswagen (OTCPK:VLKAF) without the company's capabilities in software, vertically integrated hardware, and in-house autonomous architecture. The bullish view from Morgan Stanley on Rivian (RIVN) is that the electric vehicle maker is uniquely positioned outside of Tesla (TSLA) to scale a fully integrated software stack critical to unlocking the broad AI opportunity. Notably, that AI opportunity could be snapped up by investors at a market value 1/60th that of Tesla (TSLA). The AI wildcard plays a big part of Morgan Stanley's bull case price target of $33 on Rivian (RIVN).
Rivian's (RIVN) background: The company was founded in 2009 by RJ Scaringe, initially under the name Mainstream Motors, which later became Avera Automotive before settling on Rivian in 2011. Rivian (RIVN) acquired a former Mitsubishi plant in Normal, Illinois, in 2017, which became its primary manufacturing facility. In 2018, Rivian unveiled its first models, the R1T electric pickup truck and the R1S electric SUV. The company went public in November 2021, raising $13.5 billion. In late June, the electric vehicle maker disclosed that it intends to form a joint venture with Volkswagen (OTCPK:VLKAF) to create next-gen electrical architecture and best-in-class software technology. The partnership is anticipated to accelerate the development of software for Rivian (RIVN) and Volkswagen (OTCPK:VLKAF). The partnership is seen as allowing both companies to combine their complementary strengths and lower the cost per vehicle by increasing scale and speeding up innovation globally. Rivian (RIVN) plans to contribute its electrical architecture expertise and is expected to license existing intellectual property rights to the joint venture. Both companies aim to launch vehicles benefiting from the technology created within the joint venture in the second half of the decade. In the short term, the joint venture is expected to enable Volkswagen (OTCPK:VLKAF) to utilize Rivian’s existing electrical architecture and software platform. As part of the partnership, Volkswagen (OTCPK:VLKAF) will make a $5 billion investment in Rivian (RIVN).
Shares of Rivian (RIVN) are up more than 25% since the Volkswagen (OTCPK:VLKAF) deal was announced.