Will the VW / Rivian partnership last longer Danny and Sandy's "Summer Love"?

Adapted from the GCADA Newsletter

Is it true love, or was it just a fleeting summer romance? Time has begun to reveal the answer.

At the end of June, Volkswagen Group made headlines by announcing a significant investment of $1 billion in Rivian Automotive. The automaker also stated its intention to increase its stake in the EV start-up by an additional $2 billion over the coming years.

The most noteworthy development was Volkswagen's plan to expand its total investment to $5 billion. This includes a commitment of $2 billion to a joint software development project that leverages Rivian's cutting-edge technology. This software is expected to be crucial in operating both companies' future vehicle lines.

After this announcement, Rivian's shares surged by over 50%, climbing to over $18 per share in after-hours trading. At the close of trading the following day, RIVN had risen by $0.97, ending at $14.89.

The newly formed venture, which introduced co-CEOs, is a strategic partnership based on both companies' perceived strengths and weaknesses. Volkswagen's capital infusion and production expertise could greatly benefit Rivian, while Rivian's advanced software may help Volkswagen overcome its well-documented struggles with EV software and accelerate its development timeline.

"Through our cooperation, we will bring the best solutions to our vehicles faster and at a lower cost. We are strengthening our technology profile and our competitiveness," VW CEO Oliver Blume shared with Automotive News.

This influx of capital comes at a critical juncture for Rivian. The company reported losses of $5.4 billion last year and continues to face challenges in profitably producing its vehicles. According to The Wall Street Journal, Rivian incurred a gross loss of $39,000 on each vehicle it sold in the first quarter. As of the end of March, the company had $6 billion in available cash, down from $8 billion at the end of December.

"The capital is only one portion of the value for us," Rivian CEO RJ Scaringe commented. He also noted that spreading the cost of software development over more vehicles would help reduce Rivian's parts costs.

During its investor day two days after the joint venture announcement, Rivian executives shared their production goals. They expected to produce between 9,100 and 9,300 vehicles in the second quarter, totaling 57,000 units for 2024. Scaringe emphasized that the company's efforts to simplify production should result in a 30% increase in efficiency and a 35% reduction in costs. Rivian also unveiled plans for its R2 crossover, set to be built at its Normal, Illinois plant, along with the R3 and R3X crossovers, which will be manufactured in Georgia.

The automotive industry often talks about the need for such partnerships, and while some do come to fruition, they rarely meet expectations. Whether this collaboration will prove successful remains to be seen.

From an outsider's perspective, this partnership may seem like an OEM equivalent of a May/December romance—pairing a legacy automaker with a bold new upstart.

Is this simply an investment and a strategy to share software development costs, or is there more to this relationship? It's worth noting that Volkswagen needs to be more transparent about its retail plans for the EV Scout.

Let's hope these corporate romantics spend more time together, get to know one another better, and that their whispers of sweet nothings don't include aspirations for direct-to-consumer retailing.