Volkswagen will invest up to 5 billion dollars in Rivian

Volkswagen said it will invest up to $5 billion in electric car maker Rivian, which is struggling to reach profitability, and that the companies will collaborate on developing software for electric vehicles.

The deal is key for both companies and creates an unusual alliance between the world’s second-largest automaker and an electric vehicle startup that has failed to meet investors’ expectations for the kind of results that have made Tesla the world’s most valuable automaker. . If successful, the partnership would address weaknesses in both companies. For Rivian, this provides the financial lifeline it needs to survive a sharp drop in demand for electric vehicles, and with Volkswagen’s support, it can get better deals from suppliers. Volkswagen will get software expertise that auto industry analysts say is sorely lacking in the group, and Rivian would benefit from cash and the expertise of a carmaker that produces nearly 10 million vehicles a year, placing it just behind Toyota Motor in the global auto industry.

Volkswagen will initially invest $1 billion in Rivian and would increase this amount to up to $5 billion over time. If regulators approve the transaction, Volkswagen could become a major shareholder. The investment represents a large trust capital for Rivian, which loses tens of thousands of dollars on each vehicle it sells. Rivian’s pickups and SUVs have received rave reviews in the automotive press, but the company has had trouble ramping up production at its Normal, Ill., plant. In recent months, many investors have worried that the company might not survive long enough to become profitable.

RJ Scaringe, Rivian’s founder and CEO, said his company will use the money from Volkswagen to help launch a midsize SUV, the R2, a model that retails for about $45,000, and to help complete a factory in Georgia. Rivian halted construction of the Georgia plant in March to save more than $2 billion. “It’s important to us financially,” Scaringe said of the partnership. Rivian’s currently cheapest vehicle on sale, the R1T pickup, starts around $70,000, limiting sales to affluent buyers. The R1S SUV is even more expensive, starting at $75,000, but even at those prices, Rivian lost $39,000 on each vehicle sold in the first three months of the year.

The electric vehicle market is split between relatively young companies like Tesla and Rivian, which only produce battery-powered cars, and established automakers like Volkswagen, General Motors and Toyota, which often struggle to master new technology. . With the exception of Tesla, none of the newer American automakers specializing in electric vehicles has gained significant market share. Some, such as Fisker and Lordstown Motors, stopped production and filed for bankruptcy protection. Auto industry analysts have long considered Rivian among the electric vehicle startups most likely to survive, in part because it has secured billions of dollars in investment. Amazon is one of its largest shareholders and a major customer of the company’s delivery vans.

However, Volkswagen and Rivian operate very differently and it can be challenging for them to work together. Volkswagen – based in Wolfsburg, Germany – is known for its rigid, top-down driving style and is partly owned by the state of Lower Saxony. Rivian, headquartered in Irvine, California, has the freer culture of a tech startup company. Rivian said in April that it expects to sell 57,000 vehicles this year, far less than Volkswagen sells in a week. Vehicles using the software developed by the new joint venture will go on sale in the second half of the decade, Volkswagen announced. Any of Volkswagen’s brands, including Audi and Porsche, can use the technology. Scout – an American off-road brand that Volkswagen is reviving at a plant under construction in South Carolina – can also use the software. However, Volkswagen and Rivian will continue to market their vehicles separately.

The top-secret deal came as a surprise to the auto industry and investors. Earlier this year, several camouflaged Audis arrived from Germany at Rivian’s California plant, where about 30 engineers stripped the electronics and fitted them with the American startup company’s wiring harnesses and modules. After that, the Palo Alto facility was intensively tested to see how the American startup company’s architecture and software – which controls practically all functions – would work in German cars. The aim was to find out if the group’s future electric vehicles could benefit from Rivian’s advanced technology. “I think it’s a big achievement in itself that it hasn’t been leaked, given the amount of work that’s already been done and the number of people involved in our teams,” Scaringe said. Rivian and Volkswagen have sought “super secrecy” to “see if the electrical topology and everything else really works and if they can make it happen.”

For Volkswagen, the deal brings low-cost, high-performance EV technology that traditional automakers have struggled to master. Work at the group’s software unit, Cariad – which was created in 2020 to rival market leader Tesla – has been plagued by delays and losses, partly due to slow decision-making by the group’s management. The talks that led to the dramatic merger, Scaringe said, began when he and Volkswagen CEO Oliver Blume met face-to-face at Porsche’s Atlanta experience center last August. “We dug in, talked about products and compared notes on things we liked,” Scaringe told reporters. “We immediately recognized that we had some common interests. It quickly led to a serious conversation about how we could work together.”

The companies immediately got to work, and a team from Rivian visited Volkswagen in Germany in the fall. Testing to make sure everything worked “was like a practice match,” Scaringe said. At the beginning of the year, another trip to Germany followed with lawyers and software experts. Volkswagen was less “dogmatic” when it came to what it should do itself and where it should look for external partners. To overcome the difficulties of integrating vastly different work cultures that often complicate such deals, Volkswagen’s management agreed to embrace Rivian’s agility, said Wassym Bensaid, the company’s software chief. He said they had established “very clear rules and responsibilities” for the joint venture. His comments were aimed at allaying concerns among VW investors that the company’s traditional, more methodical approach to car manufacturing and supplier contracts would clash with Rivian’s nimble software approach.

The Volkswagen-Rivian alliance could encourage other established automakers to consider investments or partnerships that connect them with similar smaller startups, companies that have established technology but are unprofitable and struggling to compete in a crowded market. Another major carmaker, Stellantis – the parent company of Chrysler, Fiat and Peugeot – has invested in Chinese company Leapmotor to gain access to its electric car technology.