Volkswagen Invests $5 Billion in Rivian, Forms Joint Venture

  • Volkswagen has underperformed in the EV segment, losing share to imported brands such as Hyundai.
  • Volkswagen was recently forced to issue large scale EV recalls and updates in relation to software issues impacting core functionalities and safety features.
  • Rivian has yet to reach profitability and has been making strides to reach lower price tiers with its future vehicle lineup to widen its total addressable market.
  • Rivian’s new R1T and R1S feature a next-generation SDV platform with advanced zonal architecture and networking capabilities.

German carmaker Volkswagen has announced an investment of up to $5 billion in US-based EV startup Rivian, to be injected over a three-year period, in a deal that also includes the formation of a 50/50 joint venture (JV) between the two parties.

How does the JV help Volkswagen?

The JV, which is expected to be finalized in Q4 2024, will permit Volkswagen to license Rivian’s vehicle and software architectural intellectual property, helping the German carmaker improve networking and architecture on its future vehicles. The JV will also provide insights into the SUV and truck segments where Volkswagen has been underperforming as compared to its peers.

Volkswagen has been struggling to gain momentum with its ID electric vehicle (EV) lineup and has underperformed in the EV segment as compared to industry peer Hyundai Kia Group. The battery electric vehicle (BEV) market is becoming increasingly crowded with some players executing well on software and cost savings efforts. Volkswagen has not been one of those OEMs. Its US market share fell to 6% in Q1 2024 from 7% a year ago while Hyundai’s share in the region rose to 13% from 6%.

Source: Counterpoint PV Global PV Sales Data

Rivian’s Gen 2 R1T and R1S advancements in adopting a zonal architecture have allowed the company to reduce its unique electronic control unit (ECU) count to just 7 from 17 and remove 1.7 miles worth of wiring in the harness. This resulted in a 35% reduction in production cost by removing 500 parts from the design and assembly of Rivian’s R1 vehicles, according to Rivian’s CEO RJ Scaringe.

Rivian Architectural Improvements

Source: Rivian Investor Relations

What will this cash influx mean for Rivian?

Rivian has been in a fight to reach profitability. The Gen 2 vehicle architecture, materials sourcing changes, headcount reductions, and manufacturing improvements have helped propel Rivian in the right direction thus far. However, with the R2 and R3 vehicles in development, an influx of $1 billion by the end of 2024 will certainly help speed up time to market and development of its Georgia manufacturing plant in the near term.

Source: Data from Rivian Investor Relations

The initial investments will help Rivian ramp development and production of its R2 platform and development of the R3 vehicles. On the other hand, the long-term investments will provide the company with the flexibility to implement its long-term roadmap which was laid out in an investor call update after the joint venture was announced. In its future roadmap, Rivian teased an affordable mass market lineup. This investment from Volkswagen will provide a more attainable path forward for Rivian.

Rivian Vehicle Roadmap

Source: Rivian Investor Relations

Rivian is targeting the $45,000 price point for the R2 vehicles. The faster that Rivian can bring the R2 to market the better as this vehicle helps widen Rivian’s addressable market reaching lower income consumers and moving out of just the ‘luxury segment’. Rivian has also stated that the R2 vehicles will receive the full benefit of the $7,500 federal EV tax credit. This comes at a time where the US consumer is still feeling the pressure of elevated inflation and high interest rates. The sooner that Rivian meets the US consumer where they are, the better.

Agreement details

  • Initial investment of $1 billion
    • Allocated to provide capital to fund operations for R2 ramp at both Normal and Georgia midsize platform manufacturing facilities
    • Initial $1 billion to be provided as unsecured convertible note that will convert into Rivian equity in Q4 2024
  • $1 billion equity investment in 2025 and an additional $1 billion in 2026
  • Additional $2 billion investment will be related to joint venture
    • Will be split between a payment at the inception of the joint venture and a loan available in 2026 as per Rivian investor relations

Source: Rivian Investor Relations

Key Takeaways

Volkswagen is tapping into both the Eastern and Western Hemispheres to design its next-generation SUVs. Prior to this announcement, Volkswagen had formed a similar partnership with Xpeng to develop a new line of SUVs for the China market. However, in the face of new US and EU tariffs on Chinese EVs, Volkswagen’s partnership with Rivian will serve Western nations as well with its future BEV development and production. Volkswagen aspires to rival Tesla in the future. To do so, it must embrace an efficient zonal architecture with central compute solutions to address its recent software challenges and cut costs.

Rivian has been on a path to profitability, and this investment infusion will help accelerate that roadmap. It has fortified investor confidence with an immediate positive reaction from the market with shares up 23% the day after the announcement. The investment will provide Rivian with the flexibility to scale both its Normal and Georgia manufacturing facilities in the near term. In the long term, it will help Rivian execute its goal of introducing a mass market vehicle lineup. There are other potential synergies from this joint venture, from sharing of service facilities to the expansion of the Rivian Adventure charging network. Although those are yet to be announced, this partnership and investment leaves a lot of room for strategic growth where leadership sees fit.

For the overall market, this is a signal that OEMs are recognizing the benefits delivered by embracing advanced software defined vehicle architectures and networking. We expect to see similar moves by legacy OEMs going forward to capitalize on cost savings and enable new functionalities.

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