In a notable industry development, Volkswagen Group (XETRA: VOWG) has planned to inject up to $5 billion into the electric vehicle (EV) manufacturer Rivian (NASDAQ: RIVN). This investment forms part of a freshly minted, equally controlled joint venture to share EV architecture and software. As news of this collaboration broke on Tuesday, Rivian's shares soared by an impressive 50% in extended trading, potentially inflating its market value by almost $6 billion if the upward trend maintains momentum.
This capital injection couldn't have come at a more crucial time for EV startups grappling with slowed demand, high interest rates, and financial struggles. At the same time, traditional automakers face their own challenges with battery and software development. Rivian's CEO, RJ Scaringe, highlighted that this financial boost would facilitate the development of cost-effective and compact R2 SUVs, scheduled for release in early 2026, and future R3 crossovers. Additionally, the partnership is expected to reduce Rivian's operating costs through greater supply chain efficiencies, steering the company toward positive cash flow.
Moreover, the collaboration means Rivian's existing intellectual property will be licensed to the joint venture, with the R2 marking the first vehicle integrating the new software. This new EV technology will eventually benefit from Volkswagen's diverse fleet, including Audi, Porsche, Lamborghini, and Bentley.
Vitaly Golomb, managing partner at Mavka Capital, sees Volkswagen's significant backing as a game-changer for Rivian, suggesting that it strengthens Rivian’s ambitions to expand into the European and Asian markets. For Volkswagen, this move addresses lingering issues with their own software unit, Cariad, which has been plagued by budget overruns and unmet targets, contributing to the exit of former CEO Herbert Diess in September 2022.
Volkswagen's immediate financial commitment includes a $1 billion investment via a convertible note set to mature into Rivian stock by December 1, pending regulatory clearance. The German automaker will inject another $1 billion at the outset of the joint venture, anticipated in Q4 of this year. Furthermore, Volkswagen will infuse an additional $2 billion into Rivian—$1 billion each in 2025 and 2026—based on the startup meeting specific milestones, alongside a $1 billion loan in 2026.
Even as Rivian faces a steep loss of nearly $40,000 per vehicle, the company remains relatively stable compared to its peers like Fisker (OTC: FSRNQ), which recently filed for bankruptcy. Rivian has focused on cost-cutting measures, including renegotiating supplier deals and producing some components in-house. According to Scaringe, these steps have been pivotal in reducing material costs and keeping production on schedule.
Before this deal, Rivian reported a decrease in cash and short-term investments by around $1.5 billion in Q1, bringing its reserves to just under $8 billion. Notably, Rivian had previously indicated sufficient funds to launch the R2 SUVs. Commenting on the partnership, Sam Fiorani, VP at AutoForecast Solutions, remarked that this cash infusion offers Rivian a critical runway past the R2 launch.
Volkswagen, for its part, reaffirmed its commitment to rolling out 25 EV models in North America by 2030 despite recognizing slowing growth in the segment. With its stock down about 3% this year, the automaker needs a strategic pivot, and partnering with Rivian provides new opportunities, especially in the U.S. market, where it has struggled with large SUVs and pickups.
Adding to Rivian’s strategy, the JV noted that Rivian’s tech will also power Volkswagen's off-road EV brand, Scout, which plans to establish a plant in South Carolina for producing pickups and SUVs slated to compete directly with Rivian products. The facility is expected to come online by late 2026, further solidifying this ambitious collaborative endeavor.
It's worth noting that Cariad's historical struggles stem from integrating legacy systems from various suppliers, creating a tangled web that has delayed critical projects for key brands like Porsche and Audi. With a revamped software architecture to launch vehicles by 2028, Volkswagen insists that Cariad will remain central in scaling its software capabilities across its various marques.
