ii view: Volkswagen pumping $5bn into Tesla car rival Rivian

Investing in electric vehicle (EV) maker Rivian

ii round-up:
 
German automotive giant Volkswagen AG (XETRA:VOW) has announced plans to make a major investment into US electric vehicle (EV) company Rivian Automotive Inc Class A (NASDAQ:RIVN) as well as establish a joint venture (JV). 

An initial $1 billion investment in Rivian shares is likely to be followed by a further $4 billion into the JV by 2026 in order for the two companies to share and develop EV architecture and vehicle software.  

Volkswagen shares fell by 1% following the announcement having come into this latest news down around 3% year-to-date. Rivian, meanwhile, surged 49% post the news having fallen by a similar amount year-to-date. Tesla Inc (NASDAQ:TSLA) is down 24% in 2024.

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VW delivered or sold 9.4 million vehicles in 2023, with adjusted operating profit staying flat at €22.6 billion given higher production costs and ongoing investments. Rivian delivered 50,122 vehicles, with losses reducing to $5.4 billion from $6.7 billion in 2022. 

VW and Rivian are expected to each hold a 50 % stake in the joint venture with each providing a chief executive. 

The German car giant may potentially benefit from Rivian’s existing vehicle software, possibly saving R&D spend on further developing its own. As well as a cash injection, Rivian likely benefits from VW’s production capacity and strengths. 

The extra $4 billion of investment from VW is subject to definitive agreements and meeting certain milestones. 

VW's first-half results are scheduled for 1 August. 

ii view:

A constituent of Germany’s major DAX index, VW employs over 670,000 people in plants across almost 30 countries. Vehicles ranging from motorcycles to supercars and heavy trucks are sold in more than 150 different countries. Group brands include VW itself, Audi, Skoda, Seat, Cupra, Lamborghini, Scania and Ducati. It also retains a major shareholding in Porsche Group - Porsche Automobil Holding SE Vorz-Inhaber-Akt stimmrechtslos (XETRA:PAH3).

For investors, the JV brings no guarantees, with VW’s planned R&D spend between 2025 and 2029 still potentially hitting €170 billion. Consumer uncertainty regarding EVs continues to see hybrid vehicles remain popular, high borrowing costs are still affecting consumer spending, while sales in China remain particularly tough and competitive with its carmakers now targeting Europe and the US. 

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To the upside, R&D spending on vehicle software and architecture could now be saved, reinforcing VW’s wider focus on costs and its 10-point efficiency plan. The diversity of its brands helps to even out the ups and downs of each. Planned new and upgraded model launches this year should appeal to consumers, while a forecast dividend yield of over 5.5% is not to be ignored. 

For now, and given the strength of its brands, this global automaker looks to remain worthy of consideration in already diversified and long-term focused share portfolios.

Positives: 

• Strong brand names including Audi and Volkswagen
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• High EV competition

The average rating of stock market analysts:

Buy