Investing.com - Volkswagen (ETR:VOWG) the German carmaker, has announced a major investment plan in Rivian Automotive Inc (NASDAQ:RIVN), an American electric vehicle (EV) maker.
This partnership, which could see investments reaching $5 billion by 2026, aims to form a joint venture for sharing knowledge on EV architecture and software.
This strategic partnership news boosted Rivian's shares by 36.3% in after-hours trading.
The collaboration is expected to fast-track Volkswagen's plans to create software-defined vehicles, with Rivian providing its existing intellectual property rights to the joint venture.
Rivian CEO Robert Scaringe stated, "This partnership brings Rivian’s software and zonal electronics platform to a broader market through Volkswagen Group’s global reach and scale, while providing an expected $5B of capital to Rivian."
The automotive industry is currently navigating through unique challenges. While EV startups are dealing with reduced demand due to high-interest rates and limited funds, traditional carmakers are trying to master the production of battery-powered vehicles and advanced software.
Volkswagen's first investment in Rivian will be $1 billion. This investment will be in the form of a convertible note that will turn into a direct shareholding in Rivian, subject to necessary regulatory approvals, not earlier than December 1, 2024. The size of the shareholding will be determined by Rivian's average share prices at the time of the agreement and the conversion date.
Besides the direct investment, Volkswagen and Rivian plan to form a joint venture to develop next-generation electric vehicle architecture. Both companies will equally control the joint venture, each holding a 50% stake.
If successful, Volkswagen will gain immediate access to Rivian's current EV architecture technology for use in its own EVs. However, the joint venture's establishment depends on several factors, like technical feasibility reviews, further negotiations, regulatory approvals, and achieving certain milestones.
A final decision on the joint venture's establishment is still pending.
If the joint venture is successfully established, Volkswagen plans to invest an additional $4 billion, either in Rivian shares or the joint venture.
Volkswagen would also provide a payment of $1 billion upon the joint venture's foundation in 2024, followed by a loan of $1 billion in 2026. If the joint venture is successfully implemented and further milestones are achieved, Volkswagen's total investment in Rivian and the joint venture could amount to $5 billion by 2026.
This could result in a payout of $2 billion in the fiscal year 2024.
The proposed transaction could lead to an unexpected cash outflow of up to 2 billion EUR in the current fiscal year. As a result, Volkswagen is revising its financial forecast for the fiscal year 2024.
The carmaker now projects net cash flow in the Automotive Division to be between 2.5 billion EUR and 4.5 billion EUR, a reduction from the previous forecast of 4.5 billion EUR to 6.5 billion EUR.