Inside VW and Rivian’s Big Bet to Rescue Each Other
World’s second-largest automaker and the Silicon Valley startup are trying to address each other’s core weakness
In August, a small team of Volkswagen VOW3 -0.73%decrease; red down pointing triangle executives and engineers flew from Germany to Palo Alto, Calif., to take a top-secret vehicle for a spin.
Originally built as an electric Audi, the vehicle had been shipped to the U.S. startup Rivian RIVN -4.17%decrease; red down pointing triangle Automotive earlier in the year in an experiment to see if it could fuse Silicon Valley tech prowess with German engineering. The Germans were impressed by what they found in California: a car that had been retrofitted so that the controls for everything from air conditioning to rear-axle steering could be updated wirelessly through a laptop.
VW, which is weighing potentially historic job and cost cuts as its business flags, had spent years and billions of dollars trying to build a digital-first car like this, and Rivian had produced a promising prototype in less than three months.
“To get this up and running in the car within such a short time, even if you work day and night, this is really great,” said Michael Steiner, VW’s head of research and development, in a recent interview at the company headquarters in Wolfsburg.
Now the two companies are taking the partnership to the next level, in a deal that aims to address a core weakness for each: VW gets much-needed technology and Rivian gets much-needed cash.
According to terms completed this week, VW will invest up to $5.8 billion in Rivian stock and a joint venture—up from a $5 billion deal value envisaged when the collaboration was announced in June. In return, the German company gets access to a blend of onboard computing and software that Rivian spent billions of dollars to develop for its own vehicles.
The deal between the world’s second-largest automaker and a relatively unproven upstart highlights the depth of the challenges they face in the race to compete with Tesla and Chinese competitors. Traditional carmakers who perfected making combustion vehicles are struggling to match the speed and technology of dedicated EV companies. Meanwhile, innovative startups like Rivian lack the scale and funds to compete with entrenched players.
VW is hoping that some of Rivian’s fast-moving, innovation-minded culture rubs off on the German auto titan, said Wassym Bensaid, Rivian’s software chief.
VW has long prided itself on its engineering prowess. Its self-reliance is such that its vast manufacturing complex in Wolfsburg generates its own power, runs hotels and makes its own sausages to feed the tens of thousands of workers.
Now, under Chief Executive Oliver Blume, it is increasingly turning to technology partners based half a world away to play catch-up. In a statement to The Wall Street Journal, Blume called the partnership with Rivian “a perfect match.”
Car companies today want to make their vehicles as easy to connect and update as a smartphone. The push is partly about keeping infotainment screens fresh, but as manufacturers look to include more autonomous features, it extends to core driving functions too.
So far, EV startups—working without the mechanical complexity of traditional vehicles—have better integrated the new technology, which involves consolidating vehicle electronics around a much more powerful central computer.
The new approach enables the kind of feature-rich, web-connected technology experience that consumers increasingly expect.
The transition to digital controls is tougher for traditional automakers to manage than the shift to big batteries, industry executives including Ford CEO Jim Farley have said.
In a recent ranking of automakers by how “digital” they are, technology consulting firm Gartner put Tesla, Chinese manufacturers NIO and Xpeng and then Rivian, respectively, in the top four spots. VW came 13th, behind General Motors and Ford.
VW wants to use the joint venture for the digital plumbing of all its passenger cars outside of China—some 5.7 million vehicles based on last year’s sales. The first cars to include the new technology could be available for sale by 2027.
For Rivian, the cash injection from Volkswagen could ensure its survival.
The U.S. company has burned through over $19 billion since it went public in 2021, a large chunk of which was spent developing bespoke hardware and software. That investment has yet to pay off, in part because the company produces too few vehicles—likely less than 50,000 this year—to turn a profit.
Rivian aims to use its successful collaboration with VW to open doors for more cooperation with other carmakers.
Both companies face risks in joining hands. Rivian is offering up an asset that it spent billions of dollars to develop, and which it has said is a core competitive advantage. VW is relying on a new venture it won’t fully control for a technology that is vital for its future.
VW is also in the midst of a painful restructuring, the result of tepid sales, intense competition in China and an expensive EV strategy. In continuing negotiations with the company’s powerful union, it has floated the possibility of the first German factory closures in VW’s history.
Of the Rivian deal, “Can we be sure that this isn’t the next billion-dollar grave?” asked Daniela Cavallo, VW’s top union representative, at an employee gathering in September.
The joint venture will be run by co-chief executives, whom the companies named on Tuesday. Rivian appointed Bensaid as the project’s leader with responsibility for technology, while VW put its chief technology engineer Carsten Helbing in charge of the operational side.
Rivian has long struggled with the complexities of manufacturing, and lost $39,000 on every vehicle it sold in the third quarter.
Rivian’s system of minicomputers that VW is acquiring is more expensive than off-the-shelf options from major automotive suppliers. Despite the costs, Rivian believes that its approach when applied at scale will ultimately be cheaper and represents a huge technological leap compared with VW’s current offering.
“There’s lots of opportunities for improvement,” said Bensaid.
For VW, teaming up with Rivian eases its dependence on its software unit Cariad, which has cost VW 7.8 billion euros, equivalent to about $8.3 billion, since it was split out in the company accounts in 2021, including almost €900 million in the latest quarter alone.
VW’s big wake-up call was the Shanghai auto show in April 2023, when the carmaker saw firsthand that digital features such as automated driving and voice control were proliferating on Chinese cars, while Cariad kept on missing deadlines.
A few months later, VW announced a deal to collaborate with Chinese startup Xpeng to jointly develop tech-forward EVs. But Steiner said VW knew that using Chinese technology in the rest of the world was a nonstarter.
Shortly after, Blume met Rivian CEO RJ Scaringe at the Porsche Performance Center in Atlanta.
The talks ultimately became serious enough for the companies to form “clean teams,” whose members would have been contractually barred from working on similar projects if the deal had fallen through.
By early June, they had stripped down a cutting-edge Audi Q6 e-tron shipped from Germany and fitted it with Rivian’s components as a lab project. The teams then started work turning a second Audi into a demonstrator vehicle that could actually be driven. A third Audi remained untouched as a reference point.
“In former times, we had kind of a claim that if something is not invented here within the VW ecosystem, it might not be good enough. Now this is gone,” said VW’s Steiner. “We cannot push the technological barrier in every area on our own.”
