Volkswagen makes big play in electric cars in $A7.5 billion deal with Rivian

German automotive giant Volkswagen has committed to invest up to $US5 billion ($A7.5 billion) in struggling US electric vehicle startup Rivian in one of its most significant moves in the switch to EVs.

Rivian has struggled to live up to investor and consumer hype, despite the popularity and critical success of its flagship R1S electric SUVs and R1T electric pickup trucks (or ute as its best known in Australia).

A November 2021 IPO saw Rivian chalk up a market valuation of close to $US100 billion, making it the sixth most valuable carmaker at the time, but it failed to create long-term financial success.

Things got worse in early 2023 when American automotive icon Ford, an early investor in Rivian, sold a majority of its Rivian shares following news that it had taken a $US4.7 billion write-down on its Rivian investment.

But as the giant US car makers beat a retreat on their own EV plans, Rivian’s potential appeal remains to some, and on Tuesday Volkswagen and Rivian announced the formation of a joint venture to create next-generation electrical architecture and best-in-class software technology.

The formation of the joint venture will also see Volkswagen immediately invest $US1 billion in Rivian through a convertible note issue, which will convert into direct shareholding upon the receipt of necessary regulatory approvals.

Potential further investment of up to $US4 billion will depend on the successful establishment of the joint venture and would come in the form of two tranches of $US1 billion each in 2025 and 2026, continent on Rivian and the joint venture achieving certain unnamed milestones.

“We’re very excited to be partnering with Volkswagen Group,” said RJ Scaringe, founder and CEO of Rivian.

“Since the earliest days of Rivian, we have been focused on developing highly differentiated technology, and it’s exciting that one of the world’s largest and most respected automotive companies has recognized this.

“Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership also is expected to help secure our capital needs for substantial growth.

“Rivian was created to help the world to transition away from fossil fuels through compelling products and services, and this partnership is beautifully aligned with that mission.”

The joint venture will focus on the development of next generation electrical/electronic architecture, or E/E architecture, for electric vehicles, providing Volkswagen with immediate access to Rivian’s existing E/E architecture technology for use in its own electric vehicles.

Both companies expect to launch vehicles benefitting from technologies created within the joint venture in the second half of this decade, while in the short term the joint venture will enable Volkswagen to utilise Rivian’s existing electrical architecture and software platform.

“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” said Oliver Blume, CEO of Volkswagen Group.

“We are also acting in the best interest of our strong brands, which will inspire with their iconic products. The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness.”

Rivian’s shares unsurprisingly skyrocketed on the back of news, with the 50 per cent increase in share price speaking volumes.