Key points:

  • Volkswagen will invest up to $5 billion in Rivian.
  • The parties will create a joint venture to develop electric vehicles.
  • The investment will help Rivian launch more affordable models and cut costs.

As part of a strategic partnership aimed at accelerating electrification, the German concern Volkswagen Group will invest up to $5 billion in the American company Rivian, specializing in the production of electric vehicles. The parties will create a new equal joint venture that will share the architecture and software for electric vehicles.

Volkswagen shares decline, Rivian shares fall

Volkswagen shares fell on Wednesday June 26, reflecting investor concerns over the cost and uncertainty surrounding its joint venture with US electric vehicle maker Rivian. The deal is aimed at strengthening Volkswagen’s position as Europe’s largest automaker in the electric vehicle segment.

Analysts said the agreement heightened questions about Cariad, Volkswagen’s software subsidiary. Cariad has been struggling with delays and losses for several years.

Rivian shares, meanwhile, rose about 50% in extended trading after the deal was announced. That could potentially add nearly $6 billion to the company’s market capitalization if the gains continue on Wednesday.

Rivian CEO RJ Scaringe said the investment will provide the company with the necessary funds to develop the less expensive and compact R2 SUV, scheduled for release in early 2026, as well as the future R3 crossover SUV.

In addition, the partnership will allow Rivian to optimize costs by increasing supply volumes, including chips and components.

Why Rivian?

Although Rivian is losing about $40,000 per vehicle sold, the company is in a better position than other electric vehicle startups that have been forced to cut prices or file for bankruptcy. Such companies include Fisker, which filed for bankruptcy earlier this month.

To maintain its sustainability, Rivian is implementing a number of cost-cutting measures without compromising the on-time delivery of its electric vehicles. These measures include renegotiating contracts with suppliers and producing some parts in-house. The company also made changes to its manufacturing process, resulting in significant reductions in material costs.

Is Volkswagen’s decision to make the deal a defeat for the company?

While Volkswagen earlier this year confirmed plans to launch 25 electric vehicle models in North America by 2030 under its group brands while acknowledging slowing growth in the segment, the company is making a strategic move by investing in Rivian.

Even though VW’s shares are down 3% this year, the partnership with Rivian opens up new opportunities to enter the lucrative large SUV and pickup truck segments in the United States. But the deal marks a departure from VW’s ambitious plans to develop its own autonomous software solutions through its troubled CARIAD unit.

The investment in Rivian, along with already significant capital and research and development spending, raises questions among some analysts about Volkswagen’s ability to compete with nimbler players in the electric vehicle market and master the necessary software skills.

It is worth noting that Volkswagen shares showed the biggest decline among German companies on the DAX index, falling more than 2% in response to the announcement of the deal.