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Volkswagen will invest up to $5bn into a partnership with American electric vehicle start-up Rivian as the German carmaker attempts to rapidly improve its software, sending the luxury electric-truck maker’s shares up more than 35 per cent.
The tie-up comes as VW looks to beef up its electric offering in the face of sophisticated competition from Tesla and Chinese rivals. VW’s in-house software developer Cariad has failed to deliver products on time, delaying its rollout of new models.
Upon agreement of a 50/50 joint venture, VW would receive “immediate access” to Rivian’s EV software for use in its own cars. The investment in Rivian and the joint venture amounts to $2bn in 2024 and up to $5bn by 2026.
EV start-ups have recently faced more expensive financing costs as a result of higher interest rates and weaker than expected demand for their products, leading some to seek investment in order to continue developing their vehicles and scaling production.
“For Rivian, this is a lifeline,” said Scott Sherwood, founder of the SSO Report. “They were the one without a deep-pocketed investor.”
“Volkswagen could be looking at an extinction event with low-priced Chinese EVs coming into Europe,” he added. “This also gives VW a foothold in a more premium EV segment in the US and potentially Europe”.
At the peak of the enthusiasm for EV start-ups in November 2021, Rivian’s market capitalisation surpassed that of VW after its initial public offering. Its share price has since fallen about 90 per cent.
Another EV start-up, Fisker, last week filed for bankruptcy after failing to secure an investment from an established automaker, the latest of the class to fold after running out of funds.
“This partnership brings Rivian’s software and zonal electronics platform to a broader market through Volkswagen Group’s global reach and scale . . . as we bring our next generation of vehicles to market,” Rivian’s founder and chief executive RJ Scaringe said on X.
Rivian’s electric trucks and sport utility vehicles are premium products, retailing at about $70,000. The company lost more than $1.4bn in the first quarter of 2024, losing more than $38,000 per vehicle.
VW has accelerated its focus on EVs, announcing last week that it had made OpenAI’s ChatGPT available in all electric ID models through its voice assistant.
Software emerged as a key stumbling block for VW’s electric vehicles, especially in China where digital native local rivals such as BYD and Nio have been aggressively gaining market share.
The first $1bn from VW comes in the form of a convertible note, which converts into Rivian stock in December 2024. The investment includes $3bn of corporate equity and $2bn of payments from VW related to the joint venture.
Analysts at research firm CFRA maintained their “sell” rating on Rivian, citing the “troubling” cash burn rate of roughly $1bn per quarter. “The key question is why would VW make such an investment in a struggling EV manufacturer that could face going concern risk in the future,” the firm said in a note. “But clearly VW sees value in gaining access to Rivian’s vehicle architecture and software.”
