Volkswagen Group and Rivian are forming a joint venture to create what the companies are calling next-generation electrical architectures and software technology.
The partnership is based around Rivian's zonal hardware design and integrated software platform, which will be the foundation for future software-defined vehicle development under the joint venture.
Rather than having chips all over the vehicle, Rivian creates centralized zones that control multiple functions in each zone, greatly reducing the need for semiconductor chips.
VW Group said it will invest $1 billion in Rivian through an unsecured convertible note that will convert into Rivian common stock upon regulatory approval. VW said it expects to invest up to $4 billion more as part of the deal.
The partnership will be used to develop vehicles at both companies.
VW Group CEO Oliver Blume said Rivian and all VW Group brands, including Scout Motors, will be able to use the software.
"The new joint venture is a complementary part of the Volkswagen Group's overarching software strategy," Blume said on a conference call with journalists on Tuesday. "It fits in with the existing activities and collaborations. Cariad and Xpeng in China, for example, are also part of this overall strategy," Blume said.
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VW Group said the partnership will help it accelerate the rollout of software-defined vehicles.
VW has dealt with delays and struggles at its Cariad software unit that have pushed back launches of critical new vehicles.
The companies aim to launch vehicles with the technology in the second half of the decade. VW Group said the partnership will help it accelerate the rollout of software-defined vehicles and transition to a pure zonal architecture.
Rivian CEO RJ Scaringe said the joint venture has been configured with a 50-50 ownership that has been designed with two co-CEOs who will report into both businesses.
Scaringe said the partnership will provide a capital roadmap to secure and support the launch of the two-row R2 crossover at the automaker's plant in Normal, Illinois, but also the launch of additional vehicles, the R3 and R3x crossovers, at its upcoming Georgia plant and path to positive free cash flow.
VW Group and Rivian will continue to operate their vehicle businesses separately.
"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 in a statement.
Europe, Asia expansion
Rivian will license its existing intellectual property to the JV, and its R2 will be the first vehicle using software from the JV. VW Group vehicles, including its Audi, Porsche, Lamborghini and Bentley brands, will follow.
"Any cash infusion like that is huge. Getting the support of Volkswagen Group certainly really strengthens their story toward Europe and toward Asia eventually," said Vitaly Golomb, managing partner at Mavka Capital, a Rivian investor.
Even with losses of nearly $40,000 for every vehicle it delivers, Rivian has been on a steadier footing than other EV startups that have been forced to slash prices or file for bankruptcy, including Fisker earlier this month.
To keep its head above water, Rivian has been slashing costs even as it works to deliver its EVs on time. It has also been renegotiating supplier contracts and building some parts in-house.
Rivian's cash and short-term investments fell by about $1.5 billion in the first quarter to just under $8 billion. Before the VW deal, Rivian had said it had enough capital to launch the R2.
"They were definitely going to need something to get them past the launch of the R2s. This definitely helps extend that range," said Sam Fiorani, vice president at research firm AutoForecast Solutions.
VW's U.S., software struggles
VW said earlier this year it was sticking with plans to launch 25 EV models in North America across its group brands by 2030, even as it acknowledged slowing growth in the segment.
Mavka Capital's Golomb said VW is not a big player in the large SUV and pickup segments in the U.S. and it has failed to break through with its ID4 electric crossover. But the partnership with Rivian gives the company options, he said.
VW's Cariad has been struggling for years. Analysts say parts of its legacy system come from suppliers, which makes integrating all the different pieces complicated. Problems at the unit delayed work on important new vehicle models such as the new Porsche Macan EV and Audi Q6 e-tron.
VW has launched a new software architecture but cars made using that technology will only reach the market in 2028.
Rivian has attempted partnerships with established automakers in the past. In November 2021, it abandoned plans to jointly develop EVs with Ford, an early investor. And in December 2022, it shelved a deal to build electric vans with Mercedes-Benz.
Laurence Iliff and Reuters contributed to this report
