Rivian’s $1B Cash Infusion From Volkswagen Is More Than Just a Lifeline

Amazon-backed electric truck and SUV startup Rivian yesterday (June 25) announced a $1 billion investment from Volkswagen Group as part of a larger software development plan for future electric vehicles. The joint venture could free up a total of $5 billion for the successful but still struggling EV maker and give Volkswagen a leg up on the next generation of “software defined vehicle” (SDV) platforms, thanks to Rivian’s software stack and innovations. Rivian shares soared more than 50 percent after the announcement. Its current market cap stands at just under $15 billion.

Volkswagen Group is one of the largest carmakers in the world (second only to Toyota by the number of cars sold annually), and analysts believe that the joint venture could benefit both automakers, especially as Rivian has struggled through what’s known as the “EV valley of death.”

Volkswagen and Rivian both benefit from the joint venture

Rivian has been carving out a unique niche in the EV market with its powerful and capable fully electric pickup trucks and SUVs. The company is also seen as far less toxic and polarizing than Elon Musk’s Tesla.

In March, Rivian CEO RJ Scaringe surprised investors and consumers by announcing not just one but two smaller SUVs, the R2 and R3, both of which are geared toward the mass market. Both vehicles have garnered a lot of excitement from investors and customers alike, but in an interview with me afterwards, Scaringe acknowledged the financial challenges that Rivian has faced over the years, including the recent delay in breaking ground at their second plant due to cost constraints.

Rivian uses what’s known as “zonal architecture,” which is the foundation for SDV platforms. Widely believed to be the future of automotive, these platforms use centralized control units to manage a wide variety of vehicle systems and components, including everything from thermal dynamics and performance to advanced driver assistance systems (ADAS) and safety systems, as well as offerings via the infotainment system. Automakers see SDVs as a way to add future revenue streams (in the form of subscriptions) via in-car entertainment and services (like BMW’s heated seats). 

“Through the joint venture, Rivian may be able to reduce some of its direct cost for developing the next-generation of its zonal architecture, as VW is contributing a substantial amount to the joint venture,” Stephanie Brinley, Associate Director of Automotive Intelligence and an automotive analyst at S&P, told Observer.

Rivian is licensing its technology to the joint venture and VW Group products can access the technology through that joint venture; it suggests Rivian is creating a revenue stream for itself as well as creating a way to share some cost of future development.”

Volkswagen, on the other hand, has struggled with its Cariad software unit over the last few years as Sam Abuelsamid, a principal research analyst at Guidehouse Insights, points out. “Many programs have been delayed or canceled because Cariad couldn’t deliver,” Abuelsamid told Observer. “Earlier this year, VW opted to cancel the next-gen ADAS that Cariad was working on and just go with Mobileye instead. Problems with architecture and software have also made it difficult for VW to reliably deploy OTA updates, something that Rivian has proven quite adept at.” 

In the press release announcing the joint venture and cash infusion, Scaringe acknowledged Rivian’s capital struggles, saying, “Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership also is expected to help secure our capital needs for substantial growth. Rivian was created to help the world to transition away from fossil fuels through compelling products and services, and this partnership is beautifully aligned with that mission.”

Rivian takes a page from Tesla

Rivian vehicles not only stand out for their innovative design and performance, but the company took a page from Tesla, and its production is fully vertically integrated, meaning that Rivian develops everything from the design of the motors and battery packs to the user interface and infotainment system completely in house. That’s markedly different from nearly every other automaker on the market today, including Volkswagen, which relies on a variety of outside suppliers for everything from software to hardware in its vehicles. 

Volkswagen Group owns a wide variety of brands, ranging from Lamborghini and Bentley to Porsche, Audi and Volkswagen. The group collectively offers only a handful of fully electric vehicles, including Porsche Taycan, the Audi e-tron line, and the Volkswagen ID.4. There are currently no fully electric, high-end luxury vehicles from the brand, though they do offer vehicles with hybrid and plug-in hybrid powertrains. Most interestingly, however, Volkswagen Group also owns Scout, an old American off-road brand that VW is trying to revitalize, and the company has said that brand could also use the software.

Rivian, on the other hand, is deeply experienced in building and creating all-electric luxury vehicles. Their R1S SUV and R1T pickup truck offer a blend of practicality with luxury and Rivian recently released a “second generation” of the R1 platform, which underpins both. It’s clear that both the software and hardware innovations included in the latest update, which I reviewed earlier this month, are specifically geared toward cutting production costs and time to help Rivian get to profitability quicker and help them begin production of the much buzzier and more affordable R2 and R3 vehicles. 

The vehicles that use software developed by the new joint venture will go on sale sometime after 2025, per The New York Times. Rivan and Volkswagen will continue to market their suite of vehicles separately, but both stand to benefit significantly from the agreement.