Is Rivian’s $1.25B Uber Deal a Smart Move for Shareholders?

Key Points

Rivian’s partnership with Uber brings in some immediate cash and secures a buyer for its first self-driving electric vehicles. However, this deal required Rivian to adjust its research and development strategy, which has delayed a long-term profitability goal. The question remains: is the deal worth it?

Big News in the Robotaxi Realm

Last week, Uber Technologies (NYSE: UBER) announced a significant investment in electric vehicle (EV) manufacturer Rivian (NASDAQ: RIVN). The deal involves up to $1.25 billion in investment from Uber and an agreement to purchase thousands of Rivian R2s equipped with self-driving technology.

For Uber, this move builds on a similar deal from last year with Lucid Group. It highlights the ride-sharing giant’s strategy of diversifying its robotaxi efforts as it competes with Alphabet’s Waymo and potentially Tesla in the future.

For Rivian, the deal serves as a major endorsement of its in-house Level 4 autonomous-driving system. It also provides much-needed capital at a time when Rivian is preparing to scale up production of its midsize R2 model.

However, there is a catch. Rivian had to make some concessions to secure this deal, and shareholders should take note.

What Makes the Deal a (Mostly) Good One for Rivian

The headlines surrounding the deal emphasized that Uber will invest “up to” $1.25 billion in Rivian and has agreed to buy “up to” 50,000 Rivian robotaxis by 2031. While the term “up to” may seem vague, it isn’t entirely empty.

Uber will invest $300 million in Rivian immediately after the deal is completed and approved by regulators. Additional investments of up to $950 million could follow over the next few years, contingent on meeting certain milestones. The exact nature of these milestones is not disclosed.

In return, Uber will purchase 10,000 robotaxis from Rivian. These could be R2s equipped with Rivian’s self-driving systems or another model. Deployment is set to begin in San Francisco and Miami in 2028, expanding to 25 cities across the U.S., Canada, and Europe by 2031. Uber also has the option to purchase up to 40,000 more robotaxis starting in 2030.

Rivian has committed to deploying its robotaxis exclusively through Uber’s ride-hailing and delivery platform. In exchange for this exclusive arrangement, Rivian accelerated its ambitious self-driving development program, securing a guaranteed path to deployment on Uber’s network and some guaranteed sales.

What Rivian Gave Up to Make the Deal Work

Rivian outlined the legal structure of the deal in a regulatory filing. Most of the details are standard, including how shares will be transferred and when. However, one line stood out:

“The Company no longer expects to be adjusted EBITDA positive in 2027 due to an expected increase in R&D spend associated with the acceleration of its autonomy roadmap.”

This was a previously stated goal. If the R2 launch went smoothly and other factors aligned, Rivian could have achieved profitability on an adjusted EBITDA basis in 2027.

What This Means for Rivian Investors

While some financial analysts have raised concerns about Rivian abandoning this profitability goal, I don’t think it’s cause for alarm. I believe this deal is beneficial for Rivian for several reasons.

Many investors see robotaxis as a massive business opportunity. I agree, but I also think many enthusiasts overlook the complexity of building and operating a large-scale robotaxi network. It’s a different challenge than building EVs or rockets.

Companies that can successfully run robotaxis at scale are likely those already managing large ride-hailing networks. In the U.S., that includes Uber and Lyft. Waymo may eventually join them, but it will be a tough road for others.

This deal ensures that Rivian’s robotaxis will operate on a vast network that Rivian doesn’t have to build itself. That is a significant advantage, enough to justify the delay in profitability.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Lyft, and Uber Technologies. The Motley Fool has a disclosure policy.