VW and Rivian wheel out a more practical EV model

Nikola

27/06/2024 13:00

(The authors are Reuters Breakingviews columnists. The opinions
expressed are their own.)
    By Jonathan Guilford and Neil Unmack
       NEW YORK, June 26 (Reuters Breakingviews) - The path
away from fossil fuels is strewn with scraps of well-intentioned
automotive partnerships. General Motors  GM.N  and Ford Motor
 F.N  are just two manufacturers that can attest to the hazards
by way of their respective clunkers with Nikola  NKLA.O  and
Volkswagen  VOWG_p.DE . The German carmaker’s new pact with
Rivian Automotive  RIVN.O , however, trims some risk by building
on today’s technology instead of tomorrow’s.
    Volkswagen CEO Oliver Blume is no stranger to team efforts.
The 55 billion euro company he runs recently bought a stake in
China’s Xpeng  9868.HK  as part of a deal to develop new models
and software. VW could use the help: its own tech division has
suffered delays and lost more than 2 billion euros last year.
    The joint venture with Rivian, unveiled on Tuesday, is an
effort to speed development of vehicles that rely on upgradable
software for their main functions. It’s important as consumers
increasingly shop for flashy upgrades like entertainment systems
over horsepower.
    Adding yet another big investment is inherently dangerous
for VW. It is committing as much as $5 billion, starting with a
$1 billion note that converts into Rivian shares. The infusion
is welcome, with Rivian guzzling cash and on track to lose about
$10 billion through 2027, according to estimates gathered by
LSEG.
    Rivian boss RJ Scaringe expects the lifeline to sustain the
$15 billion company through to a positive gross margin on its
cars this year. It also should enable it to roll out cheaper
marques. Better yet, Rivian didn’t give away crown jewels like
self-driving technology or the motors powering its cars,
restraint that helped fuel a nearly 40% jump in the stock price
on Wednesday morning.
    The combo evokes Daimler’s 2009 investment in then-fledgling
Tesla  TSLA.O . It helped boss Elon Musk navigate an especially
turbulent phase, and also benefitted his company far more than
its German backer, now known as Mercedes-Benz  MBGn.DE . VW,
too, may be setting up a rival for success.
    There’s an important distinction, however. VW and Rivian are
establishing an independent 50-50 venture to develop electrical
systems and the software that sits atop them, effectively
creating a new supplier. And unlike the Nikola or Ford tie-ups,
this one is based on functional technology.
    If things go awry, VW will have a big say in its partner’s
future. The first investment alone will give it a roughly 7%
stake in Rivian, depending on how the stock moves, though
restrictions in the agreement force VW to vote with Rivian's
board if its ownership exceeds 25%. The spoils of success are
more existential for Rivian, but Blume has mapped out a safer
route.

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    CONTEXT NEWS
    Volkswagen will invest up to $5 billion in U.S. rival Rivian
and a new joint venture to develop software for electric
vehicles, the two automakers said on June 25.
    Under terms of the deal, Volkswagen will immediately invest
$1 billion in Rivian in the form of a convertible note, with a
further $2 billion investment in Rivian's equity possible on the
achievement of certain milestones. The German company also will
invest up to another $1 billion upon the establishment of a JV
to produce technology for vehicles that depend on software to
operate and which can be flexibly updated. It may then grant a
further $1 billion loan in 2026.
    Rivian shares were up 33%, to $15.92 apiece, at 1355 GMT on
June 26, while Volkswagen’s were down nearly 3%, at 103.70
euros.

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VW's investment boosted Rivian's slumping shares    https://reut.rs/4eF86Zh
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 (Column by Jonathan Guilford in New York and Neil Unmack in
London. Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the authors, Reuters customers can
click on  GUILFORD/  and  UNMACK/ 
Jonathan.Guilford@thomsonreuters.com;
neil.unmack@thomsonreuters.com))