Electric vehicle startup Rivian and legacy automaker Volkswagen
have announced plans for an alliance that will give VW access to
Rivian's electrical architectures and software. In return, VW will
inject $5 billion into Rivian via a combination of convertible
notes, cash and loans spread over the coming three years.
Rivian is not yet financially self-sufficient
The deal mutually benefits both parties: Young Rivian needs
capital to offset ongoing free cash burn (around $6 billion in each
of the last two years). Having begun mass production of electric
vehicles in 2021, the company has more scaling to do before
attaining financial self-sufficiency. We do not foresee a
significant uptick in volumes until the second generation R2 models
scale up in 2027 and 2028.
Collaboration boosts VW's vertical integration goals
By contrast, VW needs technology. It has struggled in recent
years to build its own software development capabilities via its
troubled Cariad subsidiary. We believe VW sees particular value in
Rivian's 'over-the-air' (OTA) update technologies. Its primary
electric competitor, Tesla, has achieved a clear technological
differentiation by building more in-house.
Future Rivians could be built in VW plants
The VW-Rivian partnership does not include any plant-sharing
dimension today. However, there is arguably significant scope for
Germany-based Volkswagen to help US-based Rivian scale up. The
German group has systematically underperformed its own growth
aspirations in North America, and if VW sought to retool excess
production capacity for Rivian, there could be benefits for both
sides.
Nearer term, questions remain around how Rivian will impact VW's
pre-existing plans to revive their Scout brand via new electric SUV
models. Construction of a new production site in Columbia, South
Carolina broke ground in February, and we forecast the plant to
come online in late 2026.
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