Risks and opportunities from mergers & acquisitions and/or other strategic partnerships/investments
No risks with a score of 20 or more were reported for this risk category.
Joint ventures and minority investment risks and opportunities
Cooperation with joint venture partners or other partners might entail risks that could endanger our market position and cause financial losses.
We are increasingly concentrating on joint ventures and minority investments with strategic partners aimed at research and development, market launches and large projects. Such joint ventures and minority investments focus on strategic areas such as e-mobility, battery development, battery value chain, digitalization, vehicle software architecture, autonomous driving, mobility concepts and infrastructure. Participation in such joint ventures and minority investments has in the past required, and might continue to require, substantial investment amounts from the Volkswagen Group.
Failure to meet our obligations under joint venture, investment or related business agreements could, among other things, result in claims for damages, contractual penalties, or even termination of the agreement. A breach of contract by our partners or divergent interests between us and our partners or other unforeseen events include the risk of an unsuccessful implementation of a project. Risks may also arise in connection with data sharing, particularly regarding compliance with national data protection legislation and adherence to internal confidentiality standards, including the application of our need-to-know principle. Disputes with joint venture partners can be costly and distract management from business operations. Such joint ventures and investments could also increase coordination complexity and involve the risk of internal knowledge loss. Additionally, our partners might use technologies or intellectual property gained through joint ventures outside the intended scope. Changes or terminations of these agreements could negatively affect our areas of strategic focus. Should we decide to divest our shareholdings or exit a joint venture, finding a buyer might be challenging or we might face other obstacles in selling our shares. In addition, our partners could raise claims for damages under the investment agreements or otherwise.
We are particularly exposed to risks in relation to our joint ventures in China, due to their strategic importance in terms of our growth strategy in Asia. Any disruption to the business activities of these joint ventures, whether due to internal partnership issues or differing strategic objectives among partners, could materially impair their operations and adversely affect our interests.
In addition, the loss or disruption of such joint ventures or investments might lead to the loss of customers or orders and could harm our competitive position in the affected markets.
To mitigate the aforementioned risks, where we do co-development, such companies receive not only technical support but also assistance on IT-related aspects.
Joint ventures and investments offer significant opportunities in strategic areas and key future-oriented fields. With these, we can accelerate technological innovation, share investment risks and realize economies of scale. In addition, joint initiatives open up further growth and revenue potential. Overall, joint ventures and investments make an important contribution to sustainably strengthening our competitiveness in a dynamically evolving market environment.
Acquisition and investment transaction risks and opportunities
We may be exposed to risks in relation to corporate acquisitions and equity interests in companies.
We have in the past made, and will in the future make significant acquisitions of companies and equity interests on different share participation. These acquisitions involve substantial investments and risks during the transaction process. It therefore cannot be ruled out that we might not gain full access to all relevant information needed to fully assess a target company before finalizing an acquisition, or that doing so might incur high costs.
Target companies may also be located in countries where the underlying legal, economic, political and cultural conditions do not correspond to those that are customary in the European Union, or have other national peculiarities that we are not familiar with. Additionally, acquisitions may need to be reviewed by competition and other regulatory authorities, that could delay or prevent their completion. Consequently, we may not in advance be able to identify all associated risks or adequately protect ourselves against them. Additionally, acquisitions and their integration require significant management resources, and there is a risk that acquired technologies or assets may not hold legal validity or intrinsic value. We might also face challenges in retaining and integrating employees, business relationships and operations of acquired companies.
We might not achieve our growth targets, economies of scale, cost savings, or other strategic goals from acquisitions. Anticipated synergies might not materialize, purchase prices might be too high in retrospect, or unforeseen restructuring costs might arise. Additionally, changes in interest rates, capital costs, or market demand might adversely affect business plans and valuations. Furthermore, we might not recover guarantees and indemnities from third parties, and acquired entities’ partners might cancel contracts or make disadvantageous claims. In asset disposals, we face risks such as potential liabilities from warranties and regulatory challenges in obtaining necessary approvals. Finally, should we decide to divest our shareholdings or exit a joint venture, we are exposed to risks typically associated with such transactions, including potential liabilities resulting from contractual warranties and indemnities, as well as regulatory risks of not being able to obtain required approvals to close the transactions.
If these risks materialize, or if we misjudge them, it could lead to impairments, reputational damage and compliance risks.
To mitigate the aforementioned risks, a comprehensive due diligence review of potential targets is conducted before any acquisition or investment. This assessment covers e.g., financial strength, compliance and ESG performance, technological capabilities, governance structures and market reputation. In addition, a strategic fit analysis ensures that the target’s objectives, values and time horizons are aligned with our overall strategy. Furthermore, we strive to design the future governance structure in such a way that we gain an appropriate level of influence over key decisions, even in cases of minority shareholdings.
Corporate acquisitions and equity interests offer opportunities to strengthen our competitive position and accelerate transformation. Targeted investments provide access to innovative technologies, new business models and growth markets – particularly in the areas of e-mobility, battery development and value chain, digitalization, vehicle software architecture, autonomous driving, mobility concepts and infrastructure. They also enable portfolio diversification and long-term value creation through participation in emerging industries and sustainability-focused ventures.
Risks from the disposal of equity investments
Adverse market conditions may lead to a situation in which we could not raise capital on favourable terms. In the event of an unforeseen funding requirement, we might be compelled to dispose of assets at short notice, potentially realizing proceeds below their fair market value. Such forced sales could result in financial losses for us.
Risks arising from the impairment of goodwill, brand names or capitalized development costs
The value of goodwill, brand names or capitalized development costs reported in our consolidated financial statements has been impaired in the past as a result of revaluations and might be impaired again in the future; in addition, accounting assessments might result in further negative effects.
At least once a year, we review whether the value of goodwill, brand names or capitalized development costs might be impaired based on the underlying cash-generating units. An impairment loss may be incurred if there is objective evidence that the recoverable amount of an asset is lower than its carrying amount. Such impairments may result, for example, from rising interest rates or deteriorating business expectations. Assessing whether goodwill and acquired brand names are impaired largely relies on prediction of future cash flows and determination of appropriate discount rates. Given the ongoing transformation towards e-mobility and digitalization in the core business, the shift to self-driving vehicles and stricter environmental regulations, there are uncertainties that must be taken into account when estimating our future market share in BEVs, potential margins and long-term growth rates. Additionally, potential delays in e-mobility adoption, strong competition from China as well as the potential risk of protectionist measures must be considered. The estimates are subject to risk and may be revised if environmental regulations or market conditions change.