Volkswagen, the world’s second-largest carmaker, invested $5 billion into a California-based start-up.
German automaker Volkswagen, Europe’s largest, will pour $5 billion into California-based Rivian, CEO Oliver Blume announced on Wednesday. Rivian is a publicly traded electric vehicle maker whose shares jumped over 40% after the announcement.
The deal is divided into two sections: a 50-50 joint venture to develop a new EV software for $2 billion, and a $3 billion direct investment from Volkswagen into Rivian. The joint venture funds will be paid half at the end of 2024 and the rest at the end of 2026, helping Rivian’s struggling financials. The $3 billion investment will be paid in tranches between now and 2026 and will be tied to financial and technological milestones.
The $3 billion direct investment makes Volkswagen Rivian’s largest shareholder, owning 25% of the overall company.
“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,” Rivian CEO Robert RJ Scaringe said.
In the first quarter of 2024, Rivian reported $1.2 billion in revenues and a $1.45 billion net loss. At the end of 2023, Rivian’s long-term debt was $4.43 billion, a 260% annual increase. The deal with Volkswagen should help the EV maker overcome financial instability, at least momentarily.
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What is Volkswagen getting out of this?
Based in Wolfsburg, Germany, Volkswagen is the world’s second-largest automaker in revenue and production terms. However, it’s still far behind competitors in the transition from fuel to electric cars.
With dozens of brands under its umbrella, Volkswagen lacks the flexibility for research and innovation that a start-up like Rivian can provide. The company did a similar deal with China-based Xpeng a few years back.
Volkswagen tried to develop its proprietary EV software, Cariad, since 2020. However, the project was rid of delays and budget issues, and will likely be abandoned in favor of whatever Rivian puts on the table.
Yahoo! Finance reported that the first cars with Rivian’s software, central computer, and wiring will hit the road in 2028. However, some models with one or more of these elements could come out before.
The German giant is also planning to extend its US presence, a similar reason it poured funding into Xpeng for the Chinese market. Volkswagen plans to double its American market by 2030 as competition from China becomes harsher.
