The Biden Administration has conditionally approved a $6.6 billion federal loan to electric vehicle (EV) startup Rivian, which would help the company complete its factory in Georgia and create 7,500 jobs by the end of this decade. However, the move has led to a political slugfest, with Republican Vivek Ramaswami slamming it.
For context, the Department of Energy (DOE) would provide a $6.6 billion loan to Rivian to resume construction at its Georgia factory. Rivian had stalled production amid continued cash burn and tepid EV demand in the US.
Biden Administration Gives Conditional Approval to Massive Loan for Rivian
The DOE’s Loan Programs Office approved the loan which includes $5.97 in principal and $592 million in capitalized interest to support what it called the “Biden-Harris Administration’s Investing in America agenda.”
It said the loan to Rivian “reinforces the Biden-Harris Administration’s commitment to strengthen the nation’s manufacturing competitiveness, helping ensure American businesses remain global leaders in the rapidly expanding EV industry.”
Notably, the Biden administration took a series of steps to spur EV adoption in the country. It committed billions of dollars under the Inflation Reduction Act to building EV charging infrastructure in the country. The administration also broadened the EV tax credit which helped Tesla and General Motors models also eligible for the $7,500 tax credit.
The administration linked the EV tax credit to domestic manufacturing including for battery and critical battery minerals. After the targeted policies, companies like Toyota announced new investments in the US in an apparent bid to make its EVs eligible for the $7,500 EV tax credit.
Earlier this year, the administration quadrupled tariffs on Chinese EVs to 100% effectively closing the US market for EV imports from China.
Vivek Ramaswami Slams the Move
Meanwhile, Ramaswamy, who along with Tesla CEO Elon Musk is set to head the Department of Government Efficiency (DOGE) in the Trump administration has slammed the move. He termed the move “smells more like a political shot across the bow” at Tesla and Elon Musk. Ramaswamy also mocked the job creation and said that the $7,500 jobs that the plant would create would come to an “insane” cost of 880,000 per job.
Several social media users pointed out that Tesla has benefited from government loans and subsidies in the past. However, of late Musk has been speaking out against government subsidies as the co-head of DOGE will be tasked with advising Trump on cutting “wasteful” government expenditure.
Trump’s energy policies could be a headwind for EV companies
Earlier this year, Bank of America downgraded Rivian shares from a “buy” to “neutral” citing higher regulatory risk under the Trump administration.
“We downgrade RIVN from “Buy” to “Neutral.” The company is on-track to achieve a positive gross margin in 4Q:24 and remains one of the most viable among the startup EV automakers. However, while gross margin positive is an important milestone, it will be supported by regulatory credits that could be at risk under the Trump Administration,” said Bank of America in its note.
Notably, there are reports that Trump who vowed to end the “EV mandate” on the very first day of his presidency will do away with the $7,500 EV credit. California Governor Gavin Newsom has said that the state will come up with its own EV rebate if it is abolished by Trump.
“We’re not turning back on a clean transportation future – we’re going to make it more affordable for people to drive vehicles that don’t pollute,” said Newsom. However, the state might leave out Tesla from its EV rebate – a move Musk termed “insane.”
Newsom’s office said, “Under a potential market cap, and depending on what the cap is, there’s a possibility that Tesla and other automakers could be excluded.” It however added, “But that’s again subject to negotiations with the legislature.”
Rivian Expects to Earn $275 Million in Regulatory Credits
Rivian expects to earn $275 million in regulatory credits in Q4. As legacy automakers have been slow to ramp up their EV production – mainly because of low demand – EV companies like Rivian and Tesla are raking in money by selling regulatory credits.
There are fears that he might relax emission norms which could hurt the regulatory credit sales of EV companies like Rivian.
Meanwhile, Rivian and Tesla have settled a four-year lawsuit out of court. The lawsuit alleged that Rivian stole Tesla’s trade secrets by poaching employees. Rivian stock rallied on it settling the long-standing dispute with Tesla.
Volkswagen And Rivian Start Their Joint Venture
In June, Volkswagen announced a massive $5 billion investment in Rivian which was a big stamp of approval for the company. The two companies formally began the joint venture earlier this month with the deal size upped to $5.8 billion.
“The combination of Rivian’s electrical architecture and software platform and Volkswagen Group’s global scale, broad segment coverage, and capabilities uniquely position the joint venture to be a leader in the development of software and associated zonal electrical architecture that is designed to create structural cost advantages and be scalable across multiple vehicle brands, segments, price points, and international markets,” said Rivian in its release.
Rivian shares have rebounded from their post-election lows amid government support, Volkswagen investment, and the settlement of the Tesla lawsuit. However, the shares are still in the red and a fraction of their 2021 highs.
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Mohit Oberoi
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