German carmaker Volkswagen will invest up to $5 billion in U.S. electric vehicle maker Rivian as part of a new, equally controlled joint venture to share electric vehicle architecture and software, the companies said on Tuesday.
Rivian shares rose about 50 percent in trading following the announcement and could increase the company’s market value by about $6 billion if Wednesday’s gains continue.
The auto industry is facing a crucial time as electric car start-ups struggle with slowing demand due to high interest rates and tight liquidity, while traditional automakers struggle to build battery-powered vehicles and advanced software.
The investment will provide Rivian with the necessary funds to develop its cheaper and smaller R2 SUVs, which are scheduled to hit the market in early 2026, as well as the planned R3 crossovers, CEO RJ Scaringe told Reuters.
In addition, the partnership will enable Rivian to reduce operating costs by leveraging large volumes of supplies, including chips and components, he said.
In addition, it will help Rivian, known for its flagship R1S SUVs and R1T pickups, achieve positive cash flow.
The company will license its existing intellectual property to the joint venture and the R2 will be the first vehicle to use software from the joint venture.
Volkswagen brand vehicles, including Audi, Porsche, Lamborghini and Bentley, will follow.
“Any capital injection of this kind is enormous. The support of the Volkswagen Group strengthens their position in Europe and ultimately in Asia,” said Vitaly Golomb, managing partner of Mavka Capital, an investor in Rivian.
For Volkswagen, analysts and investors believe the investment is a step towards solving the company’s software problems.
VW’s software division Cariad – founded under former VW Group CEO Herbert Diess – exceeded its budget and failed to meet its targets, contributing to Mr Diess’s departure in September 2022.
Volkswagen will invest $1 billion in Rivian immediately. The investment will be made through a debt offering that will convert into shares on December 1, subject to regulatory approvals. Volkswagen will also make a $1 billion payment at the start of the joint venture, expected in the fourth quarter of this year.
The German automaker will also invest $2 billion in Rivian shares – $1 billion each in 2025 and 2026 – provided the startup hits certain milestones. It will also provide a $1 billion loan in 2026.
Even with losses of around $40,000 per vehicle delivered, Rivian is on steadier footing than other electric car start-ups that have had to drastically cut prices or file for bankruptcy – including Fisker earlier this month.
To stay afloat, Rivian has drastically cut costs while working to deliver its electric vehicles on time. The company has also renegotiated supplier contracts and manufactured some parts itself.
The company has redesigned its manufacturing process, resulting in a significant reduction in material costs, Scaringe told Reuters last week.
Rivian’s cash and short-term investments fell by about $1.5 billion to just under $8 billion in the first quarter. Before the VW deal, Rivian had said it had enough capital to bring the R2 SUVs to market.
“They definitely needed something to get them beyond the launch of the R2. This definitely helps extend the reach,” said Sam Fiorani, vice president of research firm AutoForecast Solutions.
The value of Rivian stock has halved so far this year. Traders have bet heavily that the stock will fall. According to data from S3 Partners, 18 percent of the shares were recently sold short.
Volkswagen said earlier this year that it was sticking to its plans to launch 25 electric models from its group brands in North America by 2030, even as the company acknowledged slowing growth in the segment. The company’s shares have fallen about 3 percent so far this year.
Mavka Capital’s Golomb said VW is not a major player in the large SUV and pickup truck segment in the U.S. and has not made a breakthrough with its ID4 electric crossover SUV. But the partnership with Rivian offers the company options, he said.
Volkswagen said Tuesday that Rivian’s software will also be used by Scout, the German automaker’s off-road electric brand. Scout is currently building a plant in South Carolina to assemble pickups and SUVs that will compete with Rivian. The plant is scheduled to open in late 2026.
VW’s Cariad has been in trouble for years. Analysts say parts of the legacy system come from suppliers, making the integration of all the individual parts complicated.
Problems at the plant delayed work on important new vehicle models, the Porsche e-Macan and Audi Q6 e-tron.
Volkswagen has introduced a new software architecture, but cars using this technology will not come onto the market until 2028.
Nevertheless, according to VW, Cariad will play a central role in scaling the software used across brands.
Updated: June 26, 2024, 04:58
