VW shares slip on plan to spend up to $5 billion in Rivian deal

By Steve Goldstein

Volkswagen shares declined after the German automaker announced a joint venture with Rivian Automotive to develop vehicle software, evidence of the moves the company is making to bolster its technology.

VW late on Tuesday reached the pact that calls for an outlay of up to $5 billion - a $1 billion convertible bond investment into Rivian, another $1 billion to set up the venture, and up to $2 billion in equity investments into Rivian and as much as another $1 billion into the venture.

While Rivian (RIVN) stock soared 50% in after-hours trade, VW's preference shares (XE:VOW3) fell 2% in early trade in Frankfurt, and are now down 6% on the year.

Once the venture is finalized, VW will get access to Rivian's current technology.

"This deal is further evidence of VW's new partnership approach, and [CEO] Oliver Blume's strategy to fix VW's legacy tech issues, which we strongly support, but only if it means the very considerable VW annual investments can come down," said analysts at Citi led by Harald Hendrikse.

VW also has a partnership deal with China's XPeng (XPEV).

They said VW should have started the partnership approach earlier. "We believe VW should have started with a partnership approach much earlier, which would have saved billions in R&D spending and may have resulted in a better technology product. We continue to see a risk that existing capitalized R&D on the balance sheet may be overvalued post the change in strategy," said the Citi analysts.

JPMorgan analysts led by Jose Asumendi said they imagine VW will use Rivian's technology in the Atlas sports-utility vehicle and the Scout pickup truck.

"It is most likely too early to judge how this will work out, but in summary VW's platform strategy has now evolved into multiple plans/platforms across geographies allowing the firm to develop specific solutions for each market," they said.

Analysts at the German fund manager DWS said the VW investment is part of a trend.

"One seemingly well-established way to rebalance the German-American relationship is for German companies to buy U.S. companies at peak valuation (and the business outlook being anything but top), and having to write off most of the goodwill within a couple of years. There is hardly any Dax company that didn't participate in this bizarre form of foreign aid over the past 30 years," they said.

-Steve Goldstein

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06-26-24 0323ET

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