Technology partnership – VW invests $5 billion in Tesla rival Rivian

It is a very welcome cash injection for Rivian: the company is still in the red and is currently struggling with declining interest in electric cars in the US. Rivian shares, which have been weak lately, rose nearly 50 percent in U.S. after-hours trading.

The collaboration is quite narrow: software, control computers and network architecture. An important point: Volkswagen will start using Rivian’s technology and software for new cars in the second half of the decade. This could save the car giant a lot of money compared to developing the technology itself. Rivian boss RJ Scaringe emphasized in a conference call on Tuesday that other areas such as batteries or propulsion technology are not part of the partnership.

Increasingly complicated electronics
To ensure that manufacturers can continually offer new features, cars have been accumulating more and more control units and longer wiring harnesses for years. With the rise of electric cars, a competition for new vehicle architectures also began. The trends: Less complexity and focus on software. Tesla was a pioneer: a computer on wheels.

From the start, Rivian developed its own architecture in which the car electronics are divided into multiple zones with their own computers. The first generation of the Rivian platform required 17 of these control units, Scaringe says. For the second generation, the number has now been reduced to seven.

Software is not yet Volkswagen’s strength
VW has been struggling with problems with its own software development for electric cars for years, causing model launches to be postponed. Scaringe stuck his finger in the wound on Tuesday. In recent years it has been recognized that established manufacturers have problems with their own software.

He sees the reason for this in the way the car manufacturer’s business has run for decades: a lot of technology was purchased from various suppliers, “which resulted in many small computers that were linked to very specific functions.” Coming from this world, it is difficult to develop an architecture based on the zone principle, where one control unit takes over functions across multiple areas. Rivian has placed this ECU (Electronic Control Unit) throughout the vehicle to shorten the data transfer path.

Analyst thinks “a real bargain”
Rivian is one of the few manufacturers to have such a zone architecture in series production – and therefore valuable for VW, said the car analyst from the market research company Garter, Pedro Pacheco, about the deal. If you consider how much money Volkswagen has already invested in the development of its own platform, the billions for Rivian are “a real bargain” for the German group. The deal also sends a signal that things once developed in-house can now come from another manufacturer. At the same time, Pacheco asked what manufacturers do with their own automotive software teams when they buy so much.

Rivian and VW’s plan calls for the development of a joint venture for both manufacturers. The billions will gradually flow to Rivian. First, VW buys convertible bonds for a billion dollars. If the joint development laboratory is established, VW will pay another billion, buy shares in two tranches in 2025 and 2026 for a billion each and provide another billion as a loan.

Volkswagen has recently encountered increasing problems in its aggressive development towards electromobility. Demand is weak in Europe and competition from low-cost domestic manufacturers in China is fierce. In the US, the group wants to capture a significant market share with electric cars and has already announced major investments in this area.

SUVs, pick-up trucks and electric vans
Rivian delivered nearly 13,600 electric cars last quarter, generating $1.2 billion in sales and a loss of $1.45 billion. The company operates in two vehicle categories that are popular in the United States: large SUVs and pickup trucks. Rivian also builds electric vans for Amazon, which can now also be seen in Europe. The world’s largest online retailer is also an investor.

The mood among Tesla’s challengers, who were hoping for an increasingly rapid pace in electric car sales, is cautious. Especially in the US, many buyers currently prefer hybrid models, and Tesla’s growth has also suddenly slowed down. The Fisker company, which produced in Magna in Graz, had to file for bankruptcy. The Ocean SUV model was delayed and angered some buyers and testers with software issues.