Volkswagen-Rivian: What to Know

Earlier this week, Volkswagen announced that it would invest up to $5 billion into electric vehicle startup company Rivian. Both companies are set to benefit from this major partnership that could reshape the entire EV industry as we know it. 

At first glance, the Volkswagen and Rivian partnership seems like an odd pairing, however, when considering two major facts, this development makes complete sense. 

  1. Volkswagen has struggled with EV development and needs Rivian’s engineering expertise.

  2. Rivian is low on cash and is desperate for a much-needed cash infusion. 

The Partnership

Let's look at Rivian first. 

The EV company has struggled to turn a profit even as sales have increased for two of its most popular vehicles: the R1S Sport Utility and the R1T truck. 

The final quarter of 2023 saw a car production and delivery record but reported losses of more than $600 million. During this period, the compay delivered 14,000 cars but is evidently bleeding money. 

Not only would a cash infusion help stop the bleeding, but streamlining costs and operations may help lower losses. Since beginning operations in Germany before World War II, Volkswagen has grown into a global powerhouse with over 114 production facilities worldwide. They have been in the industry and know the ins and outs better than most vehicle manufacturers. They are the perfect partners who will know how to lower costs without compromising on quality. 

However, Volkswagen isn’t perfect either. For the first quarter of 2024, Volkswagen has brought in over $80 billion dollars in sales. This is about 67 times larger than the revenue generated by Rivian during this same time period. Even though Volkswagen is Goliath and Rivian is David, the company has struggled with the transition to EVs and hybrids. Massive supply chains and infrastructures weren’t able to save EV sales from falling slightly in 2024. 

So how will the deal work?

Companies are learning from Tesla’s example of building out internal software for their cars rather than relying on third-party companies. The partnership will focus on the development of internal software used to operate EVs. 

Why is this important?

Because improved software will lower production costs and accelerate advances in new products. 

The theory is that the savings gained from software improvements could help Rivina erase its losses and reach an even wider market with new offerings. This, in turn, would allow Volkswagen to produce more competitive electric vehicles with better software. 

It's a win-win.

What does this mean for the EV industry?

Analysts expect the EV industry to grow over the coming years, with sales quintupling by 2030 and accounting for over 40% of vehicle purchases in the world. The companies that are at the head of this space will be the real winners of the overall car industry. 

Currently, the market is divided among fierce competitors. We have companies that exclusively focus on EVs, such as Tesla and Chinese carmaker BYD. These companies are known for their advances in the EV space and are currently leading the industry. However, deep-pocketed legacy companies aren’t willing to back down that easily. With heavy investments in the space, they have been able to slowly but surely begin to close the gap to the new incumbents. 

Ford, GM, and Stellantis have invested tens of billions into EV development. Volkswagen's partnership helps the German automaker match the scale of investments taken up by its peers.

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