VW's $5.8 billion investment in Rivian isn't guaranteed. Here are the milestones the EV maker needs to hit

DETROIT — Volkswagen Group increased its planned investment for a joint venture with electric vehicle startup Rivian Automotive to $5.8 billion as the companies have broader aspirations than they initially announced for the team-up.

Investors were impressed with the details of the deal, sending shares of Rivian up nearly 20% in early Wednesday trading.

The joint venture will provide VW with next-generation electrical architecture and software for EVs across the German automaker’s brands, while giving Rivian a needed influx of capital as well as the potential for new opportunities for future revenue and income growth.

The capital is expected to carry Rivian through the production ramp-up of its smaller R2 SUVs at its plant in Normal, Illinois, starting in 2026, as well as production of the midsize EV platform at a plant in Georgia, where Rivian paused construction earlier this year.

The companies said they expect roughly 1,000 people to work for the joint venture.

But VW’s capital to Rivian isn’t guaranteed, and neither is the success of the deal. The EV maker will have to meet some goals first.

The automotive industry has seen a number of major mergers and joint ventures that don’t result in long-term successes. Many fall apart before producing significant results.

Both VW and Rivian have experienced such failures with Ford Motor in recent years. Rivian and the Detroit automaker canceled plans to codevelop EVs two years after Ford took a 12% stake in the startup in 2019. Around that time, VW also announced a $2.6 billion deal with Ford for autonomous vehicles that didn’t pan out.

Volkswagen also is going through a restructuring that could impact the automaker’s future plans, including implementing widespread cuts and layoffs amid falling sales and profits.

Both VW and Rivian have high expectations for the joint venture, which will be named Rivian and VW Group Technology LLC.

VW’s investment will be distributed to Rivian though various forms, including convertible notes, equity and debt. Rivian is receiving $2.3 billion this year, followed by up to $3.5 billion by late 2027 or early 2028, based on negotiated milestones, which are detailed below.

Rivian received $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.”

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 nonconsecutive 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.

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.

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 news conference Tuesday said the German automaker expects to use Rivian’s technologies across a wide range of price points, international markets and brands.

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.