Volkswagen's $5bn investment in Rivian sends EV maker's stock price soaring

Move gives Rivian the financial boost it needs to bring its more affordable and compact R2 SUVs to market by early 2026

Rivian's factory in Normal, Illinois. Analysts and investors view Volkswagen's investment as a strategic move to address the German car maker's software challenges. Reuters

German car maker Volkswagen Group will invest up to $5 billion in US electric vehicle maker Rivian as part of a new, equally controlled joint venture to share EV architecture and software, the companies said on Tuesday.

The shares of Rivian surged by about 50 per cent in extended trade after the announcement, potentially supercharging the company's market value by about $6 billion, if gains hold on Wednesday.

The car industry faces a crucial time as EV start-ups grapple with a slowdown in demand amid high interest rates and dwindling cash, while traditional car makers struggle to build battery-powered vehicles and advanced software.

The investment will provide Rivian with the funding necessary to develop its less expensive and smaller R2 SUVs that are set to be introduced in early 2026, as well as its planned R3 crossovers, chief executive RJ Scaringe told Reuters.

Moreover, the partnership will enable Rivian to cut operating costs by leveraging volumes of supplies including chips and components, he said.

It will also help Rivian, known for its flagship R1S SUVs and R1T pickups, to turn cash flow positive.

The company will licence its existing intellectual property to the joint venture, and the R2 will be the first vehicle using software from the joint venture.

Volkswagen 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.

For Volkswagen, analysts and investors see the investment as a move to solve the company's software struggles.

VW's software division, Cariad – set up under former VW Group chief executive Herbert Diess – has exceeded its budget and failed to meet goals. That contributed to Mr Diess's exit in September 2022.

Volkswagen will immediately invest $1 billion in Rivian through a note that will convert to stock on December 1, subject to regulatory approvals. Volkswagen will also make a $1 billion payment at the inception of the joint venture, expected in the fourth quarter of this year.

The German car maker will also invest $2 billion in Rivian stock – $1 billion each in 2025 and 2026 – subject to the start-up hitting certain milestones, and provide a $1 billion loan in 2026.

Even with losses of about $40,000 for every vehicle it delivers, Rivian has been on a steadier footing than other EV start-ups 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.

The company has overhauled its manufacturing process, which has led to a significant reduction in cost of materials, Mr Scaringe told Reuters last week.

Workers assemble second-generation R1 vehicles at Rivian's factory in Normal, Illinois. Reuters

Rivian's cash and short-term investments fell by about $1.5 billion in the first quarter to slightly under $8 billion. Before the VW deal, Rivian had said it had enough capital to launch the R2 SUVs.

"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 company AutoForecast Solutions.

Rivian stock has halved so far this year. Traders have bet heavily that the stock will fall, with an equivalent of 18 per cent of its shares recently sold short, according to data from S3 Partners.

Volkswagen 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. The company's shares are down by about 3 per cent so far this year.

Mavka Capital's Golomb said VW is not a big player in the large SUV and pickup segments in the US and it has failed to break through with its crossover electric SUV ID4. But the partnership with Rivian gives the company options, he said.

Volkswagen said on Tuesday that the Rivian software will also be used by the German car maker's off-road EV brand Scout, which is building a plant in South Carolina to assemble pickups and SUVs that would compete with Rivian. The plant is scheduled to open in late 2026.

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 Porsche e-Macan and Audi Q6 e-tron.

Volkswagen has launched a new software architecture but cars made using that technology will only hit the market in 2028.

Still, VW said Cariad will play a central role in scaling up software that is used across the brands.