EV Startup Rivian Shares Jump Over 50% After $1 Billion Investment from Volkswagen

Volkswagen CEO Oliver Blume (left) and Rivian CEO RJ Scaringe (right) at the new joint venture announcement.Rivian

Volkswagen Group plans to enter a joint venture (JV) with US-based EV startup Rivian to leverage the latter's electronic control units (ECU) architecture and software stack to create an industry-leading software-defined vehicle (SDV) technology platform.

As part of the strategic partnership, Volkswagen will initially invest $1 billion in Rivian and an additional $4 billion by 2026, according to a June 25 press release.

Rivian shares soared over 50% to over $16 the day after the announcement but retreated to $14.45 during premarket hours on June 28, despite yesterday's investor event about improving efficiencies company-wide. The stock is down by almost 39% year-to-date as the company navigates investor concerns around high cash burn and an EV sales slump.

At the event, Rivian stressed the importance of enhancing in-house tech and reiterated its 2024 guidance for manufacturing 57,000 vehicles and achieving gross profit in Q4.

"Everything that you're hearing from us, around our product, around how we're running the business, around how we're driving toward profitability, my hope is that you're seeing really an extreme sense of urgency," Rivian CEO RJ Scaringe said during the event. "We're very, very fast driving towards the improvements necessary to get to positive free cash flow and, before that, positive margins this year."

The Volkswagen-Rivian partnership will speed up software development for the companies, resulting in lower costs per vehicle. Rivian will offer its electrical architecture expertise and license intellectual property rights to the JV for SDV development for use in both companies' vehicles.

"We're very excited to be partnering with Volkswagen Group. 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 recognised this," Scaringe said in the release. "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.

More Cashflow Will Boost Vehicle Production

On a late Tuesday investor call, Scaringe said the partnership will enable Rivian to become cash flow-positive, which will help scale production of its smaller R2 SUVs in Illinois and midsize EV platform in Georgia.

"We believe the opportunity ahead is significant. This deal is possible because we're focused on vertically integrating our network architecture, topology, V-CPUs, and associated software platforms," he said. "I've spoken about the importance of these platforms in the past and how difficult it is to replicate them."

Scaringe mentioned that Volkswagen would utilise Rivian's electrical architecture and software in the latter half of the decade, and the JV doesn't involve battery tech, vehicle propulsion platforms, or high voltage systems. He added that a "balanced" management will run the venture, where Rivian appoints the technical leadership, and Volkswagen appoints a chief operating officer.

Rivian posted a loss of $1.45 billion for Q1 as it overhauled its plant in Normal, Illinois, to roll out newer versions of its R1T pickup and R1S SUV EVs ahead of its next-gen vehicles in 2026. The company delivered 13,588 vehicles during the quarter, while cash and cash equivalents increased year-over-year (YoY) to $7.86 billion. Its capex dropped in Q1 to $254 million from $283 million in the same quarter last year.

The company has taken several cost-cutting measures in recent months, like trimming its workforce, revamping the Illinois plant for better efficiencies, and halting the construction of the Georgia factory to save over $2.25 billion in capital spending.

Concerns Around Deal Compatibility and Volkswagen's Struggling Software Subsidiary

Roger Atkins of Electric Vehicles Outlook was concerned about the compatibility of Volkswagen and Rivian.

"There's the culture issue - trying to combine Rivian's full-stack vertically integrated and flexible, nimble software approach with Volkswagen's more traditional approach of working with multiple suppliers and middle management is like shoving a square peg in a round hole," he said.

Some analysts were also worried about the investment size, as Volkswagen's capex and R&D expenses continued to hover at a high 13% of auto revenues since 2018, according to Bernstein.

Furthermore, the deal with Rivian raises questions about Volkswagen's software subsidiary Cariad, which has suffered delays and losses for years.

"The tie-up with Rivian is a further nail in the coffin of VW's ambition to develop its own in-house standalone software stacks with its problem-prone and heavily loss-making CARIAD subsidiary," Bernstein said in a note.

Cariad is undergoing a revamp as new management led by former Bentley production chief Peter Bosch strives to revive the division. Bosch said in a LinkedIn post this week that the new JV would expedite Volkswagen's software development roadmap and reduce costs.

According to a Volkswagen spokesperson, resources for SDV development will be centralised in the JV, while Cariad will keep building software for automated driving separately.