German manufacturer Volkswagen Group will invest up to $5bn into US EV maker Rivian to form a new joint venture (JV) which will secure the latter firm's precarious balance sheet and bolster VW's vehicle software solutions.
The investment, worth approximately half of Rivian's current market cap, will consist of an initial $1bn convertible note offering, before $4bn in unspecified "additional investment", and is expected to close in Q4.
Rivian's slow progress towards profitability and cash burn levels that have alarmed some analysts have sparked speculation as to whether the firm would seek external investment. In Q4 of 2023, the firm reported $9.4bn remaining in liquidity against $1.4bn in quarterly cash usage.
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Meanwhile, VW has struggled with software issues on its ID family of EVs and will likely lean on Rivian's well-received vehicle software as part of the partnership. VW already has a JV with Chinese OEM Xpeng which aims to sell highly software-advanced vehicles to the Chinese market.
There has been significant work done over the past months to validate that Rivian’s electrical architecture and software are compatible with VW's EVs, Rivian says.
Indeed, in its announcement of the JV, Rivian alluded to future software defined vehicles (SDVs) as a key touchstone of the new project.
"Rivian’s proven in-market zonal hardware design and integrated technology platform are expected to serve as the foundation for future SDV development in the JV that will be applied to both companies’ vehicles," Rivian says.
"Rivian plans to contribute its electrical architecture expertise and is expected to license existing intellectual property rights to the joint venture," the US OEM adds.
The most urgent consequence of the partnership will be shoring up of Rivian's ramp of its upcoming R2 and R3 e-SUVs, which spearhead the company's attempt to bring c. $45,000 and lower products into volume production. The firm's current R1 range is, in theory, a low volume, higher margin vehicle, selling at around $70,000, although Rivian is yet to break a profit off the vehicle.
The ramp of the R2 and R3, which is seen as the key to the company's future survival, has come under pressure as management has warned of the need to drastically reduce manufacturing costs, which has led to a factory retooling as well as a review of supplier contracts.
But the possibilities unlocked by the JV do not stop there. VW's global distribution network and home market presence in Europe could provide Rivian with the cash, as well as the logistical means, for a future European export strategy, likely for the smaller-sized R3. However, it is unclear if VW would consider this to be treading on the turf of its own midsized SUV strategy in Europe.
Conversely, VW is not currently offering EVs in the large SUV segment in North America, but may be able to enter the field on the back of the Rivian tie-up. VW has reiterated its target of bringing 25 EVs to market in North America by the end of the decade.
VW's involvement with Rivian also raises questions about the future of the German firm's planned Scout sub-brand, which would occupy similar territory to the American-made, all-terrain image of the Rivian marque.
"Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture," VW CEO Oliver Blume says. "The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness."
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
