Warning: Volkswagen investing in Rivian and Xpeng may end up in failure

$XPeng(XPEV.US)$ $Tesla(TSLA.US)$ $BYD COMPANY(01211.HK)$ $NIO Inc(NIO.US)$ The article explained why investors should avoid Rivian after VW announced investing up to $5 billion in Rivian. AJ explains why by using the latest VW investment in Xpeng, the reason behind Rivian/VW partnership and the past failure in Ford/VW and Mercedes/VW partnerships:

1) Similarities between VW/Xpeng partnership and VW/Rivian Investment

Back in July 2023, XPeng's stock experienced a significant surge following the announcement of its joint venture with Volkswagen. At the time of the announcement, XPeng's stock price was around $15 per share. Following the news, the stock soared by 26% ($23.62), reflecting investor optimism about the strategic partnership. As of today, XPeng's stock price is approximately $7.94, indicating a substantial decline from its post-announcement high! Based on this precedent, investors should expect the Rivian stock to sell-off soon.

2) Xpeng is financially better than Rivian but the stock still collapsed

Rivian trades at almost $18 billion in market value and Xpeng only at $7.5 billion. Unlike Rivian, Xpeng is already gross margin positive at 13%. Xpeng's 2023 cash burn was $192M vs Rivian's $5.9B. Xpeng and Rivian made almost the same revenue. Xpeng sells 150,000 vehicles annually and hence has almost 3 times the Rivian sales volume. Xpeng's most recent operating margin is negative 25% while Rivian's is negative 123%. By all metrics, Xpeng looks much better than Rivian but Xpeng stock is -61% from high at the time of VW's investment.

3) VW invested in Rivian was a move out of desperation.

VW’s software unit CARIAD has been working for 4 years on developing useable in-house software. CARIAD’s software was filled with bugs which led to the delay of some extremely important models. VW's investment in Rivian is just another desperate attempt to catch up in the increasingly important automotive software area.

Read here: x.com/AJ/VW invested in Rivian was a move out of desperation

VW has also been partnering with various other companies for sourcing software: for example with Xpeng for “jointly developing models equipped with state-of-the-art software…”, Mobileye for ADAS, Thundersoft, etc.

4) Rivian partnership with Ford and Mercedes ended in failure

In 2021 Ford took a major stake in Rivian when the latter went public. A year later, Ford sold most of its stake as the automaker’s shares tumbled. The sale bolstered Ford’s cash flow, and it said in its Q4 2022 Earnings Call that its relinquishment of Rivian shares “now is nearly complete.”

Rivian and Mercedes-Benz announced their partnership to produce electric vans on September 8, 2022. However, on December 12, 2022, Rivian announced that it was pausing this joint venture with Mercedes-Benz. Rivian decided to focus on its consumer business and existing commercial business, citing them as more attractive near-term opportunities.

Read here: x.com/AJ/Rivian's partnership with Ford and Mercedes have failed

My Take: Reuters who first reported Rivian/VW partnership painted a rosy picture - quoted by Teslarati and many other social media. I have put a link below for those who prefer to read this version. However I think you should read and compare both versions and decide which one to believe. Rivian share price rose 55% in the post market after the announcement. Xpeng stock had a similar hype a year ago and fell 61% from high when VW announced investing in Xpeng. It is logical to think that the VW partnership with Rivian and Xpeng may end in failure.