Is Rivian Volkswagen's EV short cut? Initial $1.5B VW investment in US electric car maker set to add joint venture in 2025

Volkswagen AG has confirmed an initial US$1B (A$1.5B) investment in US EV specialist Rivian Automotive with the intention of a direct shareholding and developing a 50/50 joint venture business focused on development of electrical/electronic (E/E) architecture.

VW says the investment, including the new JV, has the potential to grow to US$5B (A$7.5B) by 2026 and there are several angles from which to view the announcement.

Firstly, Volkswagen CEO Thomas Schäfer is on the record with criticism of his brand’s multimedia systems and Rivian’s in-house developed hardware and software, from interior displays to interconnected electronic control units, is widely considered market-leading.

In developing its “software enabled chassis and propulsion platform” Rivian has most recently added the YouTube app and Google Cast video streaming capability to its four-motor R1T dual cab ute, with over-the-air updates in place from the car’s launch in late 2021.

The Rivian brand also has significant untapped potential with the original R1T and its R1S large SUV sibling now joined by the fleet-focused EDV and ECV two-box commercial vans. More recently, the brand revealed the future mid-size R2 SUV, closely-related R3 mid-size crossover and more rugged R3X.

But the California-based company has struggled to ramp up production to the point where it can achieve a profitable run rate on key models, which, combined with a general softening of demand for EVs in major markets has hit the business hard.

Two rounds of layoffs so far this year have cut the Rivian workforce by just over 10 per cent from close to 17,000 to around 15,000. And the share price has dived 85 per cent from US$78 at the point of the brand’s IPO in November, 2021 to just under US$12 at the time of writing.

So, a large capital injection could help the once lauded but currently struggling newcomer to not only innovate in collaboration with VW Group, but save and build its core business with flow-on benefits for the German giant.

It’s important to note VW’s formal advice that, “The actual establishment of the joint venture depends on a series of different parameters, in particular, the final results of the further review of the technical feasibility of the integration of the E/E-architecture in vehicles of Volkswagen, the further negotiations between the parties as well as regulatory approvals.

“Against this background, a final decision on the establishment of the joint venture has not been made yet,” it said.

Having said that, VW added that, “In case the joint venture would be established successfully, Volkswagen intends to make further investments in shares of Rivian Automotive, Inc., or in the joint venture in the total amount of 4 billion USD. 

“The additional investment in shares of Rivian Automotive, Inc., would be made in two tranches of 1 billion USD each in 2025 and 2026 and would be contingent on Rivian Automotive, Inc., and the joint venture achieving certain milestones.” 

To put the cash injection in context, the Automotive Division of Volkswagen AG is updating its forecasting net cash flow for fiscal year 2024 to range between €2.5B and €4.5B (previously: €4.5B and €6.5B) with net liquidity between €37B and €39B.