(NEW YORK) — Volkswagen on Tuesday said it would invest up to $5 billion in Rivian, an electric vehicle startup based in California. The move sets the stage for a partnership that could benefit both companies and reshape the growing EV industry.
The joint venture, which the two companies said would focus on software development, grants Volkswagen access to Rivian’s engineering expertise while bolstering Rivian with a much-needed cash infusion.
“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” Oliver Blume, CEO of the Volkswagen Group, said in a statement on Tuesday. “The partnership fits seamlessly with our existing software strategy, our products, and partnerships.”
Here’s what to know about the $5 billion deal between Volkswagen and Rivian:
What do Volkswagen and Rivian bring to the partnership?
At first blush, Volkswagen and Rivian appear to be a fairly odd couple.
Rivian has struggled to turn a profit even as sales of its R1S sport utility vehicle and R1T truck have grown. Over the final three months of last year, the company set a quarterly record for car production and delivery but reported more than $600 million in losses, an earnings report showed. During that period, the company delivered about 14,000 cars.
The company manufactures its vehicles at a factory in Normal, Illinois. In March, the company said it was pausing construction of a manufacturing facility in Georgia.
By contrast, Volkswagen began operations in Germany before World War II, steadily expanding into a global behemoth with 114 production facilities worldwide, according to the company’s website.
Over the first three months of this year, Volkswagen brought in about $80 billion in sales, an amount 67 times larger than the revenue generated at Rivian during the same period, an earnings report showed.
Volkswagen, however, has struggled to make a successful transition to EVs. The company saw its EV sales fall slightly at the outset of 2024 compared to the same quarter last year, Inside EVs reported in April.
How will the deal work?
The partnership will focus on the development of software used to operate electric vehicles, Rivian and Volkswagen said in a statement.
Improved software, the companies added, will lower production costs and accelerate advances in new products.
In theory, the savings could help Rivian erase its losses and reach a wider market, while allowing Volkswagen to produce more competitive electric vehicles.
Volkswagen will initially invest $1 billion, before increasing its funding to as much as $5 billion, the company said.
“Since the earliest days of Rivian, we have been focused on developing highly differentiated technology, and it’s exciting that one of the world’s largest and most respected automotive companies has recognized this,” Rivian founder and CEO R.J. Scaringe said.
He added, “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.”
In early trading on Wednesday, shares of Rivian soared nearly 30%.
Dan Ives, a managing director of equity research at investment firm Wedbush, praised the partnership in a note to clients on Wednesday, saying the move would help Rivian increase production while lowering costs.
“This is a core game-changer for Rivian,” Ives said.
The stock price of Volkswagen Group, on the other hand, inched downward in early trading on Wednesday.
What does this mean for the electric vehicle industry?
The EV industry is widely expected to grow in the coming years. Sales of Evs are expected to quintuple by 2030, ultimately accounting for 40% of cars purchased worldwide, Morningstar forecasted in September.
Poised for expansion, the market has unleashed fierce competition among automakers. Companies exclusively focused on EVs, such as Tesla and Chinese carmaker BYD, lead the industry; but they face competition from deep-pocketed legacy companies making the transition.
Ford, GM and Stellantis are each investing tens of billions of dollars into EV development, according to a S&P Global Mobility Report. The partnership announced by Volkswagen helps the German automaker match the scale of investment taken up by its peers.
Volkswagen has committed to achieving net zero carbon emissions by 2050. Last year, Rivian said it signed a United Nations agreement to achieve net zero emissions by 2040.
Copyright © 2024, ABC Audio. All rights reserved.