Technology partnership

VW invests five billion dollars in Tesla rival Rivian

Rivian has so far mainly built large and heavy SUVs, pick-ups and electric delivery vans.

(Bild: Rivian)

Volkswagen is getting help with electric cars from Tesla challenger Rivian - and is investing billions in the process. Europe's largest car manufacturer wants to spend up to five billion dollars (4.7 billion euros) and jointly develop technology for future vehicles.

For Rivian, this is a very welcome cash injection: the company is still in the red and is currently struggling with declining interest in electric cars in the USA. Rivian shares, which have been flagging recently, jumped by almost 50 percent in US after-hours trading.

The cooperation is quite narrowly defined: Software, control computers and network architecture. A key point: Volkswagen will switch to 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 in-house. Rivian boss RJ Scaringe emphasized in a telephone conference on Tuesday that other areas such as batteries or drive technology were not part of the partnership.

More and more complicated electronics
In order for manufacturers to be able to offer more and more new functions, more and more control units and longer wiring harnesses have been accumulating in cars for years. With the advance of electric cars, a competition for new vehicle architectures also got underway. The trends: less complexity and a focus on software. Tesla was a pioneer - a computer on wheels.

Right from the start, Rivian developed its own architecture in which the car electronics are divided into several zones with their own computers. In the first generation of the Rivian platform, 17 of these control units were still required, said Scaringe. Now, for the second generation, the number has been reduced to seven.

Software has not been Volkswagen's strong point so far
VW has been struggling for years with problems in its in-house software development for electric cars, which has already delayed model launches. Scaringe put his finger on the problem on Tuesday. In recent years, it has been recognized that established manufacturers have difficulties with their own software.

He sees the reason for this in the way the car manufacturers' business has run for decades: A lot of technology was bought in from various suppliers, "as a result you had a lot of small computers that were tied to very specific functions". If you come from this world, you find it difficult to develop an architecture based on the zone principle, in which one control unit takes over functions across several areas. Rivian arranged this ECU (Electronic Control Unit) distributed throughout the vehicle in order to shorten the distance for data transmission.

Analyst sees "a real bargain"
Rivian is one of the few manufacturers to have such a zone architecture in series production - and therefore valuable for VW, commented Pedro Pacheco, automotive analyst at market research firm Garter, on the deal. Considering 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 company. The deal also sends a signal that things that were once developed in-house could now come from another manufacturer. At the same time, Pacheco raised the question of what manufacturers do with their own car software teams when they buy in so much.

The plan of Rivian and VW envisages a joint venture in which development is to be carried out for both manufacturers. The billions are to flow to Rivian bit by bit. First VW buys convertible bonds for one billion dollars. If the joint development laboratory comes to fruition, VW will pay a further billion, buy shares in two tranches for one billion each in 2025 and 2026 and provide a further billion as a loan.

Volkswagen has recently encountered more and more difficulties with its offensive course towards electromobility. Demand is weak in Europe and competition with low-cost domestic manufacturers is tough in China. In the USA, the Group wants to gain significant market share with electric cars and had already announced high investments to this end.

SUVs, pick-ups and electric delivery vans
Rivian delivered almost 13,600 electric cars in the last quarter, making a turnover of 1.2 billion dollars and a loss of 1.45 billion dollars. The company is active in two popular vehicle categories in the USA: large SUVs and pick-ups. Rivian also builds electric delivery 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 ever faster pace of electric car sales, is subdued. In the USA in particular, many buyers currently prefer to opt for hybrid models, and Tesla's growth has also suddenly slowed down. The company Fisker, which had its production facilities at Magna in Graz, had to file for insolvency. Their SUV model Ocean was delayed on the market and annoyed some buyers and testers with software problems.