Volkswagen investing $5B in Irvine-based EV company Rivian to design vehicle software

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Wednesday, June 26, 2024
VW investing $5B in Irvine-based EV company Rivian
Volkswagen will invest a total of $5 billion into Irvine-based EV maker Rivian as part of the new venture, including an immediate $1 billion investment.

Rivian and Volkswagen are forming a partnership to create vehicle software, the two companies announced Tuesday.

Shares of Rivian soared 40% before markets opened Wednesday after Volkswagen vowed to invest $1 billion in the struggling electric vehicle maker immediately, and a potential total of up to $5 billion as part of a software development agreement.

Rivian's market value soared close to $86 billion shortly after it went public in 2021, but it is in dire need of funding to develop its next vehicle and it is bleeding money.

The two automakers did not provide a name for the new joint venture company or name its leadership team. Rivian CEO RJ Scaringe said during a conference call that it would have two co-leaders, each reporting to one of the automakers.

"The way the joint venture has been configured as it's a 50/50 joint venture that's designed with two co-CEOs that report effectively in to both businesses," said Scaringe.

MORE: Irvine-based Rivian slashing jobs for second time this year

Irvine-based Rivian is slashing 150 jobs. It's the second time the electric vehicle company is cutting positions this year.

Volkswagen needs help with its software, where Rivian is seen as a very strong player.

Volkswagen will initially invest $1 billion in Rivian Automotive Inc., with plans to invest up to an additional $4 billion. That $4 billion includes an additional investment of up to $2 billion in Rivian's common stock that's expected to include two installments of $1 billion each in 2025 and 2026.

An investment of $2 billion related to the joint venture is expected to be split between a payment at the inception of the joint venture and a loan available in 2026.

"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," Scaringe said.

Both companies expect to lower their costs per vehicle produced while ramping up scale.

Rivian plans to license existing intellectual property rights to the joint venture, allowing Volkswagen Group to use Rivian's existing electrical architecture and software platform.

"Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture," Volkswagen Group CEO Oliver Blume said. "Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost."

Vehicles using the technology produced by the joint venture, first announced late Tuesday, are expected to be launched in the second half of the decade.

Rivian, based in Irvine, made a splash during its stock market debut in 2021 as company shares spiked 53% and its market value neared $86 billion, greater than that of Ford and just below General Motors.

Investors were searching for the next up-and-comer in the electric vehicle market, and Rivian already had some big-name backers.

Rivian landed a contract with Amazon.com to produce 100,000 electric delivery vans, and a half-billion dollars from Ford.

But Rivian has yet to turn a profit, and its stock has fallen from its lofty highs of a few years ago. To conserve cash, Rivian paused construction on a $5 billion electric truck plant in Georgia. Rivian said in March that there was no timetable for restarting work on the plant.

Earlier this month, Rivian slashed 150 jobs. It was the second time the electric vehicle company cut positions this year.

The joint venture with Volkswagen could be the jolt that's needed and Wedbush's Dan Ives called the agreement a game changer for Rivian.

"Rivian will leverage this opportunity by utilizing this robust capital roadmap to support future growth while vertically integrating its software platform and electrical architecture while achieving further cost savings and deliver improved vehicles down the line," Ives said Wednesday in a research note.

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The Associated Press and CNN Wire contributed to this report.