German automaker Volkswagen Group plans to invest up to $5B in American electric vehicle manufacturer Rivian, forming a new joint venture equally shared between them to collaborate on EV architecture and software, the companies announced on Tuesday.
Rivian’s stocks soared by around 50% in after-hours trading following the news, potentially boosting the company’s market value by approximately $6B if these gains hold through Wednesday.
Amidst a challenging period for the automotive industry, particularly with EV startups facing reduced demand and traditional manufacturers struggling with electric vehicle and software development, this investment will provide crucial funding for Rivian. CEO RJ Scaringe indicated that these funds will support the development of more affordable R2 SUVs and upcoming R3 crossovers, set for launch in early 2026.
Additionally, the partnership aims to reduce operating costs for Rivian by leveraging economies of scale in supply chain logistics, including semiconductor chips and other components. It is expected to help Rivian achieve positive cash flow, building on its current models like the R1S SUVs and R1T pickups.
The joint venture will incorporate Rivian’s existing intellectual property, with the R2 SUV becoming the first vehicle to use software developed through this collaboration. Volkswagen’s brands such as Audi, Porsche, Lamborghini, and Bentley are expected to follow suit.
Investors and analysts view Volkswagen’s move as an effort to address its software challenges, particularly through its troubled Cariad division, established during former CEO Herbert Diess’s tenure. The division has faced budget overruns and missed targets, contributing to Diess’s departure in September 2022.
Volkswagen’s initial investment of $1B in Rivian will convert to stock pending regulatory approval by December 1, with an additional $1B to be paid upon the joint venture’s launch later this year. Further investments of $2B in Rivian stock are planned for 2025 and 2026, contingent on Rivian meeting specific milestones, alongside a $1B loan scheduled for 2026.
Despite ongoing losses per vehicle delivered, estimated at around $40,000, Rivian has managed more stability compared to other EV startups. This stability has been supported by cost-cutting measures, renegotiated supplier contracts, and internal production of some components.
Looking ahead, Rivian aims to maintain financial stability through the launch of its R2 SUVs and ongoing operational efficiencies. The partnership with Volkswagen presents strategic opportunities for both companies in the competitive EV market, potentially extending Volkswagen’s reach into segments where it has previously struggled, such as large SUVs and pickups in the United States.
Volkswagen also announced plans to utilize Rivian’s software for its Scout off-road EV brand, which is establishing a production facility in South Carolina expected to commence operations in late 2026. Despite challenges, Volkswagen remains committed to expanding its EV lineup, with 25 models slated for release in North America by 2030, although its stock has seen a slight decline this year.
The integration of Rivian’s software into Volkswagen’s offerings is seen as crucial for the future scalability of its software architecture, addressing previous delays in models like the Porsche e-Macan and Audi Q6 e-tron, both anticipated to debut using the new architecture in 2028.
