Volkswagen announces potential $5 billion partnership with Rivian; A Georgia electric vehicle manufacturer can help

In March, Rivian suspended its plans to build a $5 billion factory an hour east of Atlanta. Rivian said it intends to fulfill its commitment to build the Georgia plant, but has paused the project and announced plans to shift initial production of its new low-priced electric vehicle, the R2, to its factory in Normal, Illinois.

Volkswagen Group plans to invest an initial $1 billion in Rivian, take an equity position in the startup and become one of the company's largest investors. The planned partnership includes $4 billion in additional investments through 2026, and will result in the software technologies developed being used in future electric vehicles of both companies. According to a press release.

Rivian CEO RJ Scaringe said Tuesday he remains committed to building the Georgia plant as the company expands production, and said a joint venture with Volkswagen would help in that endeavor.

“This partnership really provides a capital roadmap to not only secure and support the launch of R2 in the normal mode but also to support the launch of that mid-sized platform at our Georgia facility and our path to positive free cash flow,” he said.

“Knowing that we have a partner who not only cares about our success, because of the technology partnership, but also because of their equity ownership in us, is really helpful,” he continued.

The Rivian-VW joint venture will develop what the two companies call “next-generation software-defined vehicle (SDV) platforms.” SDVs are vehicles that can be updated over time using software improvements.

Rivian's technology will be the foundation of that software platform, which the two companies will use in new vehicles that will be developed in the coming years. Volkswagen has struggled to develop electric vehicle software.

Under the terms of the deal disclosed In a message to shareholdersVolkswagen will make its investments in a mix of convertible securities, shares and investments in the joint venture until 2026, subject to Rivian achieving certain milestones.

Oliver Bloom, CEO Volkswagen GroupThese milestones are “linked to technical proof points,” he said, and the partnership will include all aspects of their vehicle software platforms. This includes infotainment systems, self-driving functions, software connectivity, and how all of these systems receive updates, he said.

“This partnership aims to accelerate the transition from our traditional software architecture to one designed to focus on a software-defined vehicle,” Bloom said.

Credit: TNS

Credit: TNS

Not only does the announcement add another potential automaker to Rivian’s investment pool, it’s a vote of confidence at a time when the startup is focused on shoring up its balance sheet and becoming a profitable company. Rivian’s stock price was up nearly 50% in after-hours trading as of 6:30 p.m. ET on Tuesday.

Rivian postponed plans to build its factory in Georgia as a cost-cutting measure, saying the move would save more than $2.2 billion in development costs in the short term. Rivian plans to begin production of its R2 crossover at its Illinois factory in 2026, but Scaringe said Rivian would still need to build a factory in Georgia to have the capacity to scale production.

In selecting Georgia for its second plant, which is expected to employ 7,500 workers, state and local officials offered a $1.5 billion incentive package. However, most of the incentives will return to Rivian only if they collectively fulfill 80% of promised jobs and investments by the end of 2030 and maintain those metrics through 2049. Otherwise, they will be subject to clawback measures.

Copyright: Miguel Martinez

Credit: Miguel Martinez

Rivian reported a net loss of $1.4 billion in the first quarter of this year, wider than its loss of $1.3 billion in the first quarter of 2023. Rivian ended March with about $6 billion in cash and cash equivalents.

The joint venture will be a separate entity run by two executives: one from Rivian and one from Volkswagen. Rivian is expected to contribute to the development of the technology, while Volkswagen is financing this endeavor through equity investments in Rivian.

Volkswagen said it plans to invest $2 billion in the joint software company, while the other $3 billion will be used to buy equity in Rivian. Rivian's chief financial officer, Claire McDonough, told investors during a call Tuesday evening that Volkswagen's first $1 billion investment will be in the form of a note that converts into stock.

Amazon currently ranks as Rivian's largest shareholder. Amazon is also a customer that has purchased 100,000 electric delivery trucks. Cox Enterprises, which owns the Atlanta Journal-Constitution, also owns about 3% of Rivian shares.

Scaringe said this partnership will benefit both Rivian and Volkswagen, which will not only improve his company's financial position but also the software offerings the two companies offer inside their vehicles.

“The opportunity to apply (Volkswagen) scale to achieve significant cost savings across our building materials and across our business coupled with the ability to drive the acceleration of this technology into more products on the Volkswagen side is really very complementary,” he said.