After Rivian (NASDAQ:RIVN) announced a strategic partnership with Volkswagen (ETR:VOWG_p) worth up to $5 billion, RIVN stock rapidly rose to its February levels. Now at $15.67, RIVN shares nearly doubled its value from the 52-week bottom of $8.26 per share.
Legacy German carmaker Volkswagen Group will join forces in developing new-gen software for its cars and lowering the cost of Rivian’s vehicles. Volkswagen has a proven track record in scaling global manufacturing, and the company will leverage Rivian’s innovative zonal architecture design.
Departing from the common domain architecture, which disperses electronic control units (ECU) according to function regardless of location, Rivian’s zonal architecture distributes ECUs by location. By relying on data bridges, this type of design significantly cuts costs on the vehicle’s weight and expensive wiring and processing.
In Rivian’s case, this means offsetting the costly battery package. And as all surveys show, EV affordability remains the primary hurdle for EV adoption. Does that mean that Rivian’s bottom line is now more attractive?
What to Expect From Rivian in the Coming Years
From the Volkswagen Group investment announcement, it is clear that the fruits of the equally controlled joint venture will materialize in the latter half of the decade, beyond 2025. Volkswagen will specifically transition to pure zonal architecture with its next-gen software-defined vehicles (SDVs), now boosted by Rivian’s expertise.
“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost.”
Oliver Blume, Volkswagen Group CEO
In 2025, Rivian plans to roll out the improved versions of its flagship electric SUVs, Rivian R1S and R1T. Now competing with cheaper Kia EV9, R1S will remain a premium offering with dual, tri or quad motor all-wheel drive with up to 850 horsepower and numerous luxury features. The base R1S Dual Standard model is set with a $75,900 price tag up to $108,650 for Tri-Max.
R1T is the affordable option, also with improved performance and range, starting from $69,900 up to $103,400 for Tri-Max. However, Rivian’s five-seater R2, with a $45,000 price tag, will really push mass adoption.
Initially planned to launch from the $5 billion Georgia plant, the plan shifted to the existing facility in Normal, Illinois, for the first half of 2026. Purportedly, this will save over $2.25 billion in costs.
Rivian’s Market Segment Demand and Profitability
Like Elon Musk started Tesla (NASDAQ:TSLA) with proof-of-concept luxury EVs to break the tradition of awkward-looking cars, Rivian rides the SUV train. Due to their inherent larger size and higher seating position for greater visibility, SUVs have become popular as they make crashes significantly more survivable.
However, due to their size, SUVs are also fuel-guzzlers. Federal policies on fuel economy standards have inadvertently incentivized SUV manufacturing via the ‘light truck loophole.’ Rivian’s EV version cuts short that concern.
SUVs’ market share in the passenger vehicle market has consistently grown. Together with pick-up trucks, they made 72.9% of total sales in Q1 2022, according to JATO Dynamics, making them a uniquely American phenomenon. Toyota (NYSE:TM) RAV4 has been the dominant seller, with a starting price point of $33,770 at the time.
Between January and May, Toyota sold 206,559 units in the US. For comparison, Rivian plans to deliver 57,000 units for 2024, having delivered 13,588 SUVs in Q1. Interestingly, the fuel price spike hasn’t toned down the demand for SUVs, indicating a higher income bracket of customers.
According to a YouGov Survey, nearly half of Americans drive an SUV/truck, mainly among consumers “who are older, white, wealthy and who have children.” This bodes well for Rivian’s cheaper R2 lineup as a higher-tier equivalent to regular SUVs like Toyota RAV4.
Up to this point, Rivian R1S has been the best-selling EV, above $70k in Q1, and has become especially popular in California. With a 5.1% market share in US EVs, the company plans to achieve the first positive gross profit in Q4 2024, per the Q1 shareholder letter.
Is Tesla Rivian’s Competitor?
Having recalled all 3,878 Cybertrucks due to accelerator pedal issues, followed by recalls related to detachable bed trim while driving and defective windshield wipers, Tesla has fantastically sullied its reputation in the SUV segment.
At the same time, Rivian also had numerous recalls, including for the accelerator pedals. However, as Tesla holds the dominant EV position in the US, the company receives greater public scrutiny. In the branding department, Rivian caters to off-road, adventurous customers, while Tesla is oriented toward the urban tech-savvy crowd.
Rivian is likely to gain from the flops of Cybertruck, but it is also compatible with Tesla’s Supercharger network. Rivian will likely hold and expand its early mover advantage in the electric SUV segment. In the meantime, RIVN stock is heading for a price correction after the buy-in from the Volkswagen news event.
The average RIVN price target is $14.25, according to Nasdaq’s forecasting data, with the ceiling at $21 and the bottom at $8 per share. For both Tesla and Rivian, the next two years in scaling operations will fortify or break their fundamentals.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.