The EV market has retreated from its former highs, many startups, once the darlings of Wall Street, are now grappling with significant financial pressures. Tesla, for example, has seen its market value plummet to less than $550 billion from a peak of $1.2 trillion in 2021. Rivian, regarded by investors to replicate to Tesla’s success, is also struggling, alongside companies like Fisker, which declared bankruptcy just a year after launching its Ocean SUV.
How does the acquisition work?
On Tuesday, Volkswagen Group announced its initial investment in Rivian Automotive of $1 billion, which may increase to $5 billion. This strategic move includes forming a 50:50 joint venture dedicated to developing cutting-edge EV software. Volkswagen plans to inject $2 billion into this venture, disbursing the funds equally by the end of 2024 and 2026.
Following the announcement, Rivian’s aftermarket shares surged by about 30%, an immediate response from the market. This boost could increase Volkswagen’s stake to 25%, potentially positioning it as a bigger shareholder than Amazon.
Why is VW buying into Rivian?
Volkswagen’s investment in Rivian is aimed at enhancing its software unit, Cariad, which has struggled and resulted in delayed model launches. Founded in 2020 by the then-CEO Herbert Diess, Cariad was meant to foster a tech-driven culture akin to Tesla’s, but it has fallen short of expectations.
Integrating Rivian’s advanced software and vehicle technology is expected to remedy these shortcomings, propelling the development of new EV solutions. This strategy mirrors Volkswagen’s earlier partnership with Chinese EV maker Xpeng, which focused on adapting software for regional markets. Plans are set for Rivian’s complete technology suite to be integrated into Volkswagen’s vehicle lineup by 2028, with possible earlier adoption.
What’s in it for Rivian?
Achieving profitability in the automotive industry typically requires manufacturing at scale, with annual production figures around 500,000 vehicles. Rivian, facing a steep challenge, reported a gross loss of $39,000 on each vehicle sold in the first quarter of the year. The partnership with Volkswagen presents an essential opportunity for Rivian to leverage Volkswagen’s extensive manufacturing expertise and substantial financial resources—projected to be about $38 billion this year—to reduce production costs and scale effectively.
Is this a match made in heaven?
The success of this acquisition hinges on the effective management and integration within the joint venture between Volkswagen and Rivian. The ability to blend these contrasting operational styles—merging Volkswagen’s structured processes with Rivian’s nimble, dynamic approach—is crucial. It’s not just about working together; it’s about doing so without unnecessarily complicating existing workflows or stifling the inventive spark that has characterised Rivian’s rise.
A successful implementation could set a precedent for future collaborations between legacy automakers and EV startups, potentially reshaping industry standards and practices. What say you?
Sources: The Wall Street Journal, The Economist, Autoblog
