Why VW Inked Major SDV Deal With Rivian

Volkswagen takes a big strategic jump forward into software-defined vehicles by inking a deal with Rivian for a joint venture to create next-generation electrical architectures and software  technology in which the German automaker will invest $5 billion in the U.S.-based BEV start-up.

“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” VW CEO Oliver Blume says in a statement. “We are strengthening our technology profile and our competitiveness.”

The venture is the latest cut by Blume, who took the top job at VW in September 2022 after the ousting of Herbert Diess, to shore up VW’s SDV and BEV development.

Shifting from ICE vehicles to SDV BEVs requires expertise in areas where historically Volkswagen has little experience. VW also has among the highest costs per vehicle sold in the auto industry. Spending $5 billion to gain access to Rivian’s established intellectual property and expertise will seem like a bargain when the first VWs to utilize Rivian’s tech debut in 2028. Rivian’s software systems and architecture are expected to be utilized across all of VW’s brands including the revival of the Scout brand, whose vehicles will compete against Rivian’s pickup and SUV.

Diess set up software unit Cariad in 2020, hoping to develop a tech culture to rival Tesla, but this program has not worked out with multiple delays and losses. VW’s unruly structure and processes have not been a good fit with software developers who have come to the automaker from the outside.

To fix the problem and speed up VW’s SDV development, Blume has done a deal with Xpeng in China in addition to this deal with Rivian.

Under the deal, VW Group will invest $1 billion in Rivian through an unsecured convertible note that will convert into Rivian common stock upon regulatory approval with the rest of the investment to follow.

The move makes a lot of sense for Rivian, which is experiencing cash-burn as demand for BEVs has slowed down. Rivian had $5.97 billion in cash and equivalents last month, down from $11.78 billion in the same period last year, highlighting the financial strain from deliveries and operational losses.

Rivian is just releasing an update to its software and battery-pack. WardsAuto had a chance to drive new vehicles with the updated software last week.

Second-Gen Rivians Are Quicker, Go Farther, Add New Features

Rivian at one time had a significant investment from Ford. On Nov. 19, 2021, Ford and Rivian announced they no longer planned to co-develop an electric vehicle. Originally, both companies had planned the joint development of a vehicle for Ford's luxury Lincoln brand. Those plans were canceled in 2020.

As of June 25, Amazon is still Rivian's largest shareholder, with a 16% stake in the EV company. Amazon's stake is valued at nearly $2 billion and benefits when Rivian does well, though the impact on Amazon is small. Amazon is also Rivian's main customer for delivery vans.