Rivian shares surge after VW pledges to pump $1bn into the troubled EV maker

A Rivian sports-utility vehicle is seen on display in Austin, Texas

Rivian shares rocketed by 40% in pre-market trading on Wednesday after Volkswagen pledged to pump $1 billion into the beleaguered electric vehicle manufacturer, with a potential total investment of up to $5billion as part of a software development deal.

Rivian's market value skyrocketed to nearly $86billion shortly after its public debut in 2021, but it is now desperately seeking funds to develop its next vehicle and stem its cash hemorrhage. Meanwhile, Volkswagen is looking for assistance with its software, where Rivian is considered a powerhouse. Volkswagen's initial investment in Rivian Automotive Inc. will be $1billion, with plans to invest an additional $4billion.

This includes a further investment of up to $2billion in Rivian's common stock, expected to be made in two instalments of $1billion each in 2025 and 2026. A $2billion investment related to the joint venture is anticipated to be divided between an upfront payment and a loan available in 2026.

Rivian founder and chief executive RJ Scaringe said in a prepared statement: "Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group's global reach, but this partnership also is expected to help secure our capital needs for substantial growth."

Both companies anticipate that this partnership will reduce their costs per vehicle produced while increasing scale. Rivian is set to shake things up by licensing its tech to a joint venture with Volkswagen Group, which will see the auto giant leveraging Rivian's electrical architecture and software platform.

Volkswagen Group chief executive Oliver Blume said: "Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture. Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost."

Rivian, hailing from Irvine, California, made waves on Wall Street back in 2021 when it went public, seeing shares soar by 53% and its valuation close to $86billion, overtaking Ford and just below General Motors. Investors keen on finding the next big thing in the EV market were drawn to Rivian, bolstered by major support from industry heavyweights.

Among Rivian's accolades is a deal with Amazon.com for 100,000 electric delivery vans and an investment of half a billion dollars from Ford. Despite the interest, Rivian has been grappling with profitability issues, and its share price has tumbled from the dizzying heights of yesteryear.

In a bid to save funds, Rivian put the brakes on constructing a new $5billion electric truck plant in Georgia, with no clear timeline on when they'll resume. However, the new deal with Volkswagen could be just the spark Rivian needs to get back on track, with Wedbush analyst Dan Ives calling the agreement a "game changer" for the company.

"Rivian will leverage this opportunity by utilizing this robust capital roadmap to support future growth while vertically integrating its software platform and electrical architecture while achieving further cost savings and deliver improved vehicles down the line," Ives remarked in a Wednesday research note.