The German car giant risking billions on an unproven EV challenger
Joint venture will give VW access to electric car technology and software used in Rivian's so-called 'electric adventure vehicles' - Jamie Kelter Davis/Bloomberg
Volkswagen has revealed plans to invest up to $5bn (£3.9bn) in Tesla rival Rivian as the German car giant makes a last gasp attempt to revive its flagging electric vehicle strategy.
The world’s biggest carmaker will hand Rivian, which develops so-called “electric adventure vehicles”, an initial $1bn. The pair will set up a joint venture that gives VW access to Rivian’s car technology and software and clears the way for a further $4bn investment by 2026.
For VW, the deal offers a way to quickly catch up rivals such as Tesla and Chinese electric vehicle (EV) makers by buying, rather than building, technology.
For Rivian, it offers a lifeline. The US challenger already has burned through billions of dollars and suffered a 90pc share price collapse in its effort to break into the EV market.
It may therefore seem like a win-win. But Richard Windsor, an independent technology analyst, called the pair “desperate bedfellows”.
VW’s multibillion-dollar bet on a company that produced just 57,000 vehicles last year highlights the EV struggles of the German car giant, which was once all-conquering but has now found itself playing catch-up.
Shipments of its electric cars, which include the ID.3, fell by 24pc in Europe in the first three months of the year and dropped 16pc in the US. In May, VW indefinitely delayed the launch of its latest EV sedans in the US – a market it has long struggled to crack.
Drivers have gone off EVs globally as electricity prices have risen, while the cost of buying a new EV upfront has remained stubbornly high.
Despite this, VW must invest: the German business faces EU fines if it fails to boost its electric car sales and misses fleet emissions targets.
The carmaker plans to invest close to $200bn on the shift to electrification and converting massive plants such as Zwickau to pump out EVs. However, VW, which also owns Audi, Porsche and Seat, has been widely viewed as behind the pack on the technology and an accompanying shift towards smarter, more digitally connected cars.
Playing catch-up is costly and money is in increasingly tight supply. The €56bn (£47bn) carmaker has lost roughly half its value from its peak in 2021 – while the “dieselgate” cheating scandal of 2015 and the ensuing fallout has cost the business tens of billions of dollars in legal fees and fines.
Windsor, who runs the Radio Free Mobile blog, said VW was “in an almighty mess”.
In a meeting with staff last year, senior executive Thomas Schӓfer told staff “the roof is on fire”, while the brand’s finance chief told employees on a call “our vehicle business is unwell”.
Adding to woes is the fact that the carmaker is caught in the middle of a trade war between the European Union and China – a crucial market for sales. Cheap Chinese electric car brands are flooding Europe, leading to the threat of punitive tariffs from Brussels and counter threats from Beijing.
VW’s business in China is already struggling. Much has been made of Tesla’s tussle with China’s BYD for dominance in Asia, but VW has also suffered. The company lost its title as the best-selling car brand in China to BYD in 2022. Its market share has fallen from 19.3pc in 2020 to around 14.5pc as demand for petrol cars dipped, and it has been on the defensive.
BYD, meanwhile, has been rapidly expanding its cut-price electric car footprint across Europe with other brands soon to follow. Scott Sherwood, founder of the SSO Report, told the Financial Times that VW risked an “extinction event”.
Matthias Schmidt, an analyst at Schmidt Automotive Research, said VW’s deal with Rivian represented “a big statement about de-risking from China” while “trying to get the US house in order”.
For years, he said, “CEO after CEO in Wolfsberg” had neglected the US and leaned too heavily on China, failing to tailor its vehicles to meet American tastes.
“Volkswagen were often accused of not listening to their US customer-base,” Schmidt adds, “developing models in Europe for the US that famously didn’t accommodate US-sized water bottles”.
The company has also been plagued by problems modernising its in-car software.
Its Cariad technology division was set up as the brainchild of former chief executive Herbert Diess. VW once claimed Cariad could generate revenues of over €1.2 trillion by 2030. But the unit has endured multiple leadership reshuffles, delays to its software rollout and a restructuring. It lost €2.4bn in 2023 alone.
Analysts at Bernstein said the Rivian deal represented a “further nail in the coffin of VW’s ambition” to develop its own software.
“The execution of that strategy has been abysmal,” Windsor said, suggesting the division may well end up rolled up into its new Rivian joint venture. VW has also invested $700m in XPeng, a Chinese electric carmaker, to boost its software products.
Shares in Rivian, which is backed by Amazon, climbed more than 50pc in extended trading after the deal was announced. The investment provides a lifeline to the company, which is expected to lose close to $3bn this year and would have run out of cash in 2025.
Rivian has plenty of sceptics, not least Tesla boss Elon Musk, who said in February the company “need to cut costs massively ... or they will die”.
Its upmarket vehicles have been well received by car critics, although it has suffered its own share of delays and disruption. Its vehicles typically start in the region of $70,000, although it plans to offer a cheaper SUV – the R2 – for $45,000. This model should arrive in Europe in 2027.
Oliver Blume, VW’s group chief executive, said the companies were “acting in the best interest of our strong brands”. RJ Scaringe, Rivian chief executive, said the deal would “secure our capital needs for substantial growth”.
Market watchers are in agreement that the bet on Rivian is a major gamble for 56-year-old Blume. VW’s shares dipped 2pc on the news, a sign of just how risky the investment is seen as.
Windsor says the deal is “the lifeline that Rivian desperately needs” although notes it will still need to return to investors for more cash eventually. He adds it also potentially “paves the way for VW to acquire Rivian”.
Carmakers are looking to “spread [their] bets globally,” says Schmidt, amid ongoing trade turmoil and supply chain disruption. Giving VW a critical foothold in the US, he says should be looked on by Blume as “part of his legacy”.
If the partnership pays off, that is. If Rivian fails to accelerate VW’s progress in the EV race, then the deal may end up a black mark on Blume’s record.
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