Volkswagen to Invest Up to $5 Billion Into EV Maker Rivian

Volkswagen Group is investing $1 billion in electric-pickup maker Rivian Automotive, with plans to spend up to $5 billion as part of a software-development partnership.

The deal, disclosed Tuesday, should provide a lift for the balance sheet of the loss-making startup and help lower the cost of Rivian’s next generation of vehicles. For VW, the deal is aimed at bolstering its software unit, which has struggled with quality issues.

VW said it would invest $2 billion in the creation of a jointly-owned software company that uses Rivian’s vehicle technology as the foundation for programs that will go into both automakers’ future vehicles in the latter half of the decade.

The German automaker said it also planned to purchase a $3 billion stake in Rivian over a few years, including the initial $1 billion injection.

The cash provides Rivian a financial cushion as it works toward the launch of new vehicles, which the company has said will be more affordable than its current offerings that start at $70,000.

Rivian’s shares rose about 30% in aftermarket trading.

Rivian Chief Executive RJ Scaringe said in an interview that the company now had enough money to fund operations long enough to become a cash-generating business.

“The capital is only one portion of the value for us,” Scaringe said. Spreading the cost of Rivian’s software over a larger fleet of vehicles through the VW tie-up would lower parts costs for Rivian as well, he said.

The Irvine, Calif.-based company reported a net loss of $5.4 billion last year.

Before the VW investment, Rivian had sought to conserve cash in part by postponing plans for a new factory in Georgia, which the company said would allow it to save around $2 billion on the launch of its next vehicle, the R2 SUV.

Under the deal, VW is adding a new partner in its efforts to overhaul its troubled software unit, Cariad, after quality issues held up the launch of several models. In October, Volkswagen hired a veteran of Tesla and Rivian to head up the software unit with a mandate to speed up development.

The VW investment comes as young EV companies such as Rivian—one-time Wall Street darlings during a euphoric period for electric cars—face plateauing sales and questions about demand for their vehicles. Another startup, Fisker, filed for bankruptcy protection last week after running out of cash.

Rivian is one of the most prominent among a group of electric upstarts that went public in recent years, as investors piled into companies promising to repeat Tesla’s success.

Rivian’s R1T pickup, R1S SUV and battery-powered delivery van were a success with customers and critics, but the company struggled to turn a profit on them. The company reported a gross loss of $39,000 on every vehicle it sold in the first three months of the year.

Rivian has burned through billions of dollars, and its cash-on-hand fell to roughly $6 billion at the end of March, down from $8 billion at the end of December.

In an effort to reduce costs, Rivian recently overhauled its sole factory, in Normal, Ill., and redesigned its vehicles to make them cheaper to build. Executives have said the changes will enable the company to report its first gross profit by the end of the year.

The joint venture with VW will incorporate some of the design improvements made by Rivian, including a reduction in the number of computer chips and cables that power the vehicles, Scaringe said.

Rivian is scheduled to host investors at its factory on Thursday.

Write to Sean McLain at [email protected]