Rivian Just Made a Move That Could Help Unlock $950 Million and More

For Rivian Automotive (NASDAQ: RIVN) investors, the R2 understandably grabs plenty of attention and inspires much optimism about the young electric vehicle (EV) maker's future. Building and selling more affordable electric vehicles is obviously a big part of the company's growth story.

But Rivian also needs to make the technology inside those vehicles worth paying for. That's exactly where Rivian's recent acquisition comes into the fold. Buying an artificial intelligence (AI) start-up might sound like another expensive project with a distant payoff.

But this deal could support two near-term opportunities: additional investment from Uber Technologies and more compelling paid features for existing or future Rivian owners. Let's dig in.

What did Rivian buy?

On Oct. 22, Rivian announced its acquisition of Third Dimension AI, roping in technology for generating detailed and controllable 3D environments in-house. The platform converts real-world data and situations into simulations used to train and validate autonomous-driving systems. Unfortunately, for investors hoping for more insight into the cost of this acquisition, financial terms weren't disclosed.

Think of it this way: Collecting driving footage, as Rivian does with its vehicles, is useful, but engineers also need to understand how software responds when conditions are less predictable. Remember that the vast majority of those footage hours are boring and worthless in terms of improving its autonomous capabilities. Recreating a situation digitally lets them test variations without waiting for every unusual event to happen on a public road in real life.

The potential benefit is faster, more thorough development. The investing questions are what can Rivian do with that, exactly? And how can the acquisition investment pay off for the EV maker and its investors?

Help earn the next Uber check

Uber's agreement to invest up to $1.25 billion in Rivian through 2031 comes with strings attached, of course. Autonomy milestones must be achieved. The partnership targets initial commercial robotaxi deployments in San Francisco and Miami in 2028. Rivian received the initial $300 million in May and according to its second-quarter filing, up to $950 million remains across four milestones, subject to conditions that include demonstrating autonomy quality. Future funding involves issuing shares or warrants, meaning existing investors also face dilution -- which as I've previously called out, Rivian is normally very good about avoiding.

If more effective and targeted simulation helps Rivian develop and validate its driving system, it could support progress toward those milestones. That said, buying the start-up doesn't automatically unlock a check from Uber. Still, improving a capability needed to earn that funding is a reasonable strategic move especially considering the need for its R2 to be autonomously capable for its deployment target in 2028.

Image source: Rivian.

Give consumers more reasons to pay

Robotaxis aren't the only potential customer for better driving software. There's also the consumer base that already has a Rivian parked in the driveway. Rivian began charging for Autonomy+ in April, offering one-time and monthly payment options. The company plans additional capabilities over time, including point-to-point driving and more advanced automation for vehicles with the necessary hardware.

It's a pretty simple business: More useful features could persuade more owners to subscribe and give existing subscribers more reason to stay. That would help Rivian increase revenue beyond the initial vehicle sale, and generally these types of subscriptions, services, or features are high-margin business.

Third Dimension should strengthen the commercial potential of Rivian's proprietary autonomy software. However, improved subscription adoption and profitability still need to follow down the road, and better simulation alone doesn't guarantee either.

What it all means

For investors, that's the appeal of this acquisition. One development tool and acquisition could improve both Rivian's commercial partnership with Uber and consumer software offering more potential revenue value from each Rivian vehicle owner.

With the purchase price undisclosed, it's too early to call the deal a bargain or no-brainer, but Rivian has given investors two concrete ways to judge whether it pays off: autonomy milestones achieved and paid features that could improve the company's Autonomy+ business.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.