Volkswagen Group invests $5bn in Rivian for joint EV venture

German automaker Volkswagen Group will fund up to $5bn in US electric vehicle maker Rivian as part of a unique, equally controlled joint experience to share EV architecture and software, the firms said on Tuesday.

Strategic Partnership to Share EV Architecture and Software

German automaker Volkswagen Group has announced a substantial investment of up to $5 billion in US electric-vehicle maker Rivian.

This investment is part of a new joint venture where both companies will equally control and share EV architecture and software.

The announcement, made on Tuesday, saw Rivian’s shares surge by about 50% in extended trading, potentially increasing the company’s market value by nearly $6 billion if the gains persist.

Implications for the Auto Industry

The automotive industry is at a pivotal moment as EV startups face declining demand due to high interest rates and dwindling cash reserves.

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At the same time, traditional automakers are grappling with the challenges of producing battery-powered vehicles and advanced software. This partnership between Volkswagen and Rivian aims to address these challenges head-on.

Funding for Future Rivian Models

The investment will provide Rivian with the necessary funding to develop its smaller and more affordable R2 SUVs, which are scheduled to debut in early 2026, as well as its planned R3 crossovers.

Rivian CEO RJ Scaringe highlighted that the partnership will enable the company to reduce operating costs by leveraging the combined volumes of supplies, including crucial components like chips.

Enhancing Rivian’s Financial Position

Known for its flagship R1S SUVs and R1T pickups, Rivian aims to turn cashflow positive with the help of this investment.

The company will license its existing intellectual property to the joint venture, and the R2 will be the first vehicle to incorporate software from this collaboration. Volkswagen vehicles, including its Audi, Porsche, Lamborghini, and Bentley brands, will

subsequently benefit from the JV’s technology.

Expert Opinions and Strategic Benefits

Vitaly Golomb, managing partner at Mavka Capital and a Rivian investor, emphasized the significance of this cash infusion, stating, “Getting the support of Volkswagen Group certainly strengthens their story toward Europe and toward Asia eventually.” This strategic move positions Rivian for global expansion and financial stability.

Volkswagen’s Software Challenges

For Volkswagen, this investment is seen as a solution to the company’s ongoing software struggles.

The company’s software division, Cariad, established under former VW Group CEO Herbert Diess, has been plagued by budget overruns and unmet goals, contributing to Diess’ departure in September 2022.

Investment Details

Volkswagen will immediately invest $1 billion in Rivian through a convertible note, set to convert to stock on December 1, pending regulatory approvals.

Additionally, Volkswagen will make a $1 billion payment at the inception of the joint venture, anticipated in the fourth quarter of this year.

This joint venture marks a significant step for both companies, potentially reshaping the landscape of the electric vehicle industry by combining the strengths of a traditional automaker with an innovative EV startup.