Why Volkswagen is investing billions in a joint venture with Rivian

What’s the old saying—if you can’t beat them, form a joint venture with them?

That’s the idea that Volkswagen is betting on, anyway, with a new partnership with EV startup Rivian. The agreement, which the automakers announced late last month, would see VW invest up to $5 billion into a joint effort to develop “next-generation software-defined vehicle platforms” that both companies would use for their own vehicles.

“Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture,” Volkswagen Group CEO Oliver Blume said in a joint press release announcing the deal. “Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost…We are strengthening our technology profile and our competitiveness.”

What Rivian gets out of the deal is fairly straightforward: an infusion of cash. That’s important because the EV maker is in the midst of a critical effort to cut the roughly $39,000-per-vehicle loss it’s currently generating even as it undertakes the capital-intensive task of scaling up production and investing in future products.

In the press release, Rivian founder and CEO RJ Scaringe said the partnership “is expected to help secure our capital needs for substantial growth.”

The Irvine, California-based manufacturer is working to release second- and third-generation vehicles at a lower cost than its flagship R1 lineup. Analysts have said that the planned 2026 launch of Rivian’s R2 lineup is a key test for the company. To help in the near term, the company recently re-engineered the R1S and R1T to be more cost-efficient.

Rivian’s stock jumped on the VW tie-up news. Wedbush Securities analysts wrote in a research note that the deal is “a core game changer for Rivian.”

As for VW, the deal gives Europe’s leading automaker access to Rivian’s tech know-how, which is important because VW reportedly has struggled with software issues in some of its vehicles, including its electric ID.3 and ID.4.

“Software stacks are hard to build, and the zonal architecture approach that Rivian has is clever,” Stephanie Brinley, principal automotive analyst for S&P Global Mobility, told Tech Brew. “Now, hooking up with Rivian and using this technology is still going to require development and evolution, and it’s still going to require refinement and [adaptation] to Volkswagen’s needs, but they expect they can get there a little bit quicker.”

The deal, which is subject to final negotiations and regulatory approvals, would give the two companies an equal stake in the JV. Volkswagen would make an initial investment of $1 billion in Rivian, with “up to $4 billion in planned additional investment.”

Rivian’s zonal hardware design and software platform would serve as the basis for development of software-defined vehicles for both companies. The automakers said they’re eyeing the second half of the decade as the timeline for launching those vehicles.

“In the short term, the joint venture is expected to enable Volkswagen Group to utilize Rivian’s existing electrical architecture and software platform,” the companies said in the press release. “The partnership’s ambition is to accelerate Volkswagen Group’s [software-defined vehicle] plans and transition to a pure zonal architecture. Each company will continue to separately operate their respective vehicle businesses.”

Rivian and VW declined to offer additional comment.

Brinley noted that there’s precedent in the automotive industry for competitors successfully partnering on specific initiatives. GM and Honda, for example, have worked together on a number of projects, including ongoing joint development of fuel-cell electric vehicles.

“There is history within the industry of being able to have a specific and concise partnership that benefits two parties,” she said, “without harming the independence of either.”

Update 07/12/24: This piece has been updated to include that Rivian declined further comment.