Workers assemble second-generation R1 autos at electrical auto maker Rivian’s manufacturing facility in Normal, Illinois, U.S. June 21, 2024.
Joel Angel Juarez | Reuters
DETROIT — Volkswagen Group elevated its deliberate funding for a three way partnership with electrical car startup Rivian Automotive to $5.8 billion as the businesses have broader aspirations than they initially introduced for the workforce up.
Investors have been impressed with the small print of the deal, sending shares of Rivian up almost 20% in early Wednesday buying and selling.
The three way partnership will present VW with next-generation electrical structure and software program for EVs throughout the German automaker’s manufacturers, whereas giving Rivian a wanted inflow of capital in addition to the potential for brand new alternatives for future income and revenue development.
The capital is predicted to hold Rivian via the manufacturing ramp-up of its smaller R2 SUVs at its plant in Normal, Illinois, beginning in 2026, in addition to manufacturing of the midsize EV platform at a plant in Georgia, the place Rivian paused development earlier this yr.
The firms mentioned they count on roughly 1,000 folks to work for the three way partnership.
But VW’s capital to Rivian is not assured, and neither is the success of the deal. The EV maker must meet some objectives first.
The automotive business has seen various main mergers and joint ventures that do not lead to long-term successes. Many disintegrate earlier than producing vital outcomes.
Both VW and Rivian have skilled such failures with Ford Motor lately. Rivian and the Detroit automaker canceled plans to codevelop EVs two years after Ford took a 12% stake within the startup in 2019. Around that point, VW additionally introduced a $2.6 billion take care of Ford for autonomous autos that did not pan out.
Volkswagen additionally goes via a restructuring that might impression the automaker’s future plans, together with implementing widespread cuts and layoffs amid falling gross sales and income.
Both VW and Rivian have excessive expectations for the three way partnership, which shall be named Rivian and VW Group Technology LLC.
VW’s funding shall be disturbed to Rivian although varied kinds, together with convertible notes, fairness and debt. Rivian is receiving $2.3 billion this yr, adopted by as much as $3.5 billion by late 2027 or early 2028, based mostly on negotiated milestones, that are detailed beneath.
2024: $2.3 billion
Rivian obtained $1 billion in June upon announcing the deal. That came in the form of a convertible note, which is expected to be converted to Rivian equity on Dec. 1.
Of the $1 billion, $500 million will convert at a share price of $10.84. The other $500 million will convert based on the stock’s 45-day volume-weighted average price, or VWAP, ahead of the time of conversion.
Rivian is set to receive $1.3 billion in cash this week following the close of the deal and formation of the joint venture, including “consideration for background [intellectual property] licenses and a 50% equity stake in the joint venture.”
2025: $1 billion
Rivian will receive $1 billion of investment in the form of equity at a 33% premium to the 30-day VWAP at the time of issuance if it reaches either two non-consecutive quarters of $50 million of gross profit or two consecutive quarters of gross profit. This will not occur any earlier than June, according to the companies.
Rivian has five years to achieve the milestone, which will be measured by its GAAP versus profit and excludes any impacts the joint venture has on Rivian’s financials.
Rivian CFO Claire McDonough said the company will update the expected financial impacts of the joint venture when it releases its fourth-quarter results next year.
2026: $2 billion, including loan
Rivian will receive $1 billion of equity based on successfully testing the joint venture’s technology in winter testing in one or more vehicles. The equity investment will be determined by the 30-day VWAP leading up to investment.
Rivian also has the option to draw a $1 billion loan in October 2026, which would be backed by its equity stake in the joint venture.
The loan would need to be prepaid over a 10-year period, but it will not require principal repayment until 2029. The interest rate of the loan will be equal to VW’s cost of debt on a seven-year maturity, plus 25 basis points.
2027/early 2028: $460 million
Rivian will receive $460 million of equity for the first production of a saleable VW vehicle using the joint venture’s technology.
The equity investment will be priced at an 84% premium to a 30-day VWAP leading up to milestone.
VW Group CEO Oliver Blume during a press conference Tuesday said the German automaker expects to use Rivian’s technologies across a wide range of price points, international markets and brands.
Other details
Through 2028, Volkswagen said it will fund 75% of the shared platform costs within the joint venture, with Rivian funding 25%.
Starting in 2029, VW will fund an incremental $100 million per year of the joint venture’s shared costs, which will reduce Rivian’s shared costs.
Additionally, Rivian anticipates a material cost savings from sourcing shared parts such as electronic control units from suppliers.
