Rivian Automotive and Volkswagen land regulatory approval in Germany for joint venture

Germany’s Bundeskartellamt cleared the formation of a joint venture between Rivian Automotive (NASDAQ:RIVN) and Volkswagen (OTCPK:VLKAF). The competition regulation agency also cleared Volkswagen’s (OTCPK:VLKAF) acquisition of a minority stake in Rivian Automotive (RIVN). The project was cleared under merger rules as it was not expected to significantly impede competition.

Rivian (RIVN) and Volkswagen (OTCPK:VLKAF) will each hold a 50% position in the joint venture, which aims to develop the next generation of architecture for electric vehicles. Volkswagen (OTCPK:VLKAF) will invest up to $5 billion, $3 billion of which will go to Rivian (RIVN) and $2 billion in the joint venture as certain milestones are hit.

Bundeskartellamt statement (translated from German): “At its core, the cooperation project is about the way in which a large number of complex functions and components are best organized in cars and how they interact with each other. As cars become increasingly digital and connected, the question of the right system architecture is nothing less than a key competition parameter. When it comes to cooperation projects set up to develop new products and technologies in key cutting-edge sectors, particularly those involving large companies, we take a close look at competition in innovation. The project does not raise any concerns in this respect, nor does it raise any other serious competition concerns.”

Last month, Wall Street analysts weighed in favorably on the Rivian-Volkswagen deal. Bank of America analyst John Murphy said the news is meaningfully positive for Rivian Automotive (RIVN) as the agreement should provide the company with access to capital to not only fund the ramp-up of production of the R2 at its Normal, Illinois facility, but also to build a new facility in Georgia for its mid-size vehicle platform. “RIVN could also see potential benefits from material cost savings and operating efficiencies that would help improve its cost position and ultimately higher gross margins,” noted Murphy. Wedbush Securities said the deal was a core game changer for Rivian and changes the capital structure of the company looking ahead. Analyst Dan Ives expects that Rivian (RIVN) will leverage the Volkswagen (OTCPK:VLKAF) opportunity by utilizing the robust capital roadmap to support future growth, while also vertically integrating its software platform and electrical architecture to reduce cost savings and deliver improved vehicles down the line. Meanwhile, Evercore ISI analyst Chris McNally said his firm views Volkswagen’s (OTCPK:VLKAF) $3 billion potential equity injection combined with $2 billion planned joint venture investment as essentially a $4 billion to $5 billion RIVN low dilution, low-interest equity infusion plan over the next three years.

Shares of Rivian Automotive (RIVN) were down 0.33% in early afternoon trading on Monday. The electric vehicle maker is scheduled to report Q2 earnings on August 6th after the market closes.