Rivian stock price soars after Volkswagen announces $5 billion investment in the EV maker

Shares of electric vehicle maker Rivian Automotive (ticker: RIVN) are soaring, with the stock up more than 40% in premarket trading as of the time of this writing. The reason for the stock surge? The company is getting a $1 billion investment from legacy automaker Volkswagen, with another $4 billion to come. Here’s what you need to know.

Volkswagen will invest $5 billion in Rivian

On Tuesday, Volkswagen and Rivian released a joint statement announcing that the German automaker would invest billions in the American EV company.

The investment will end up totaling $5 billion. As CNBC notes, the first $1 billion will be invested in Rivian this year. An additional $1 billion will be invested in 2025 and again in 2026. Then a final $2 billion will also be invested in 2026.

The latter $4 billion will be invested after the two companies form a joint venture.

Is Volkswagen buying Rivian?

No, not at all. The German automaker is making an investment in the American EV maker in a mutually beneficial deal. However, the two companies will remain separate, and as both sell EVs, they will also remain competitors while still partnering on some aspects of EV technologies.

How does Rivian benefit from the investment?

The most immediate benefit to Rivian is simply the infusion of cash—the first $1 billion–that the company will receive from Volkswagen. Rivian has been burning through cash lately as it looks to get production off the ground for its next generation of EVs, which are scheduled to be made at factories in Illinois and Georgia.

But because Rivian’s cash flow has been so poor, there have been concerns about the company’s ability to ramp up the production of its next-gen vehicles by 2026, which is when the production of the EVs are scheduled to begin.

Rivian’s cash problems are in part due to operational costs. The company reported a $1.45 billion loss in the first quarter of this year due to it retooling its Illinois plant in preparation for its next-gen EVs.

How does Volkswagen benefit from the investment?

As part of the deal, Volkswagen and Rivian will work together on software technologies that both carmakers can use in their electric vehicles. Rivian’s software stack that helps power its EVs is one of the company’s strengths, and with this deal, Volkswagen will be able to leverage that technology without needing to start from the ground up creating its own.

How have investors reacted?

Quite well when it comes to Rivian stock.

As of the time of this writing, RIVN shares are up over 40% in premarket trading, showing that investors believe Volkswagen’s investment will significantly help ease Rivian’s cashflow problems. Before the announcement of the deal yesterday, the company’s shares had fallen by as much as 49% year to date.

Shares of Volkswagen AG (ticker: VOW.DE), on the other hand, are currently trading down about 1.8% today as of the time of this writing on the German markets, suggesting that the German automaker’s investors see little immediate upside for the company on the news of the Rivian deal.