On June 21, 2024, workers assembled the second-generation R1 car at the electric vehicle manufacturer Rivian’s manufacturing plant in Normal, Illinois, USA.
Joel Angel Juarez | Reuters
Detroit- Volkswagen Group Increased planned investments in joint ventures with electric vehicle startups Rivian Cars to $5.8 billion as the companies have broader expectations for the team than initially announced.
Investors were impressed by the details of the deal, sending Rivian shares up nearly 20% in early trading Wednesday.
The joint venture will provide Volkswagen with next-generation electric vehicle architecture and software, while providing Rivian with needed capital inflows and new opportunities for future revenue and revenue growth.
The capital is expected to help Rivian ramp up production of the small R2 SUV at a plant in Normal, Illinois, starting in 2026, and build a midsize electric vehicle platform at a plant in Georgia, where Rivian had previously paused construction this year.
The companies said they expect the joint venture to have about 1,000 employees.
But the funding Volkswagen provides to Rivian is not guaranteed, nor is the success of the deal. Electric vehicle manufacturers must achieve some goals first.
There have been many major mergers and joint ventures in the automotive industry, but none have been successful in the long term. Many fall apart before producing significant results.
Both VW and Rivian have experienced this failure Ford Motor Company recent years. Two years after Ford acquired a 12% stake in Rivian in 2019, Rivian and the Detroit automaker scrapped plans to jointly develop electric vehicles. Self-driving car deal, but it didn’t work out.
Volkswagen is also in the midst of a restructuring that could affect the automaker’s future plans, including large-scale cuts and layoffs amid falling sales and profits.
Volkswagen and Rivian both have high hopes for the joint venture, which will be called Rivian and VW Group Technology LLC.
Volkswagen’s investment will be distributed to Rivian through a variety of forms, including convertible notes, equity and debt. Rivian will receive $2.3 billion in funding this year and up to $3.5 billion by late 2027 or early 2028 based on agreed-upon milestones, as detailed below.
2024: $2.3 billion
Rivian secured $1 billion in funding in June Announcing the deal. The funding comes in the form of convertible notes that are expected to be converted into Rivian equity on December 1.
Of this $1 billion, $500 million will be converted at a share price of $10.84. The other $500 million will be converted based on the 45-day volume-weighted average price (VWAP) of the shares prior to conversion.
After the deal closes and the joint venture is established, Rivian will receive $1.3 billion in cash this week, which includes “consideration of background (intellectual property) licensing and a 50% equity interest in the joint venture.”
2025: $1 billion
If Rivian’s gross profit reaches US$50 million in two non-consecutive quarters, or if its gross profit reaches US$50 million in two consecutive quarters, Rivian will receive an investment of US$1 billion in the form of equity, with the investment amount representing a 33% premium over the 30-day VWAP at the time of issuance. According to the companies, this won’t happen earlier than June.
Rivian has five years to achieve the milestone, which will be measured through its GAAP and profits, excluding any impact of the joint venture on Rivian’s financial condition.
Rivian Chief Financial Officer Claire McDonough said the company will update the expected financial impact of the joint venture when it releases fourth-quarter results next year.
2026: $2 billion, including loans
Rivian will receive $1 billion in equity if it successfully tests the joint venture’s technology in winter testing on one or more vehicles. Equity investments will be determined based on the volume-weighted average price of the 30 days prior to investment.
Rivian also has the option to draw down a $1 billion loan in October 2026, which will be backed by its equity stake in the joint venture.
The loan requires prepayment over 10 years, but the principal does not need to be repaid until 2029.
2027/early 2028: $460 million
Rivian will receive $460 million in equity to use the venture’s technology to produce its first salable Volkswagen vehicle.
The equity investment will be priced at an 84% premium to the 30-day volume weighted average price prior to reaching the milestone.
The German automaker expects to use Rivian’s technology across a variety of price points, international markets and brands, Volkswagen Group Chief Executive Oliver Blume said at a news conference on Tuesday.
Other details
Volkswagen said it will bear 75% of shared platform costs within the joint venture by 2028, with Rivian covering 25%.
Starting in 2029, Volkswagen will increase its share of the joint venture’s costs by $100 million annually, which will reduce Rivian’s share of costs.
In addition, Rivian expects to save material costs by purchasing common parts such as electronic control units from suppliers.
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