Volkswagen announces plans for electric tie-up with Rivian

German car maker Volkswagen Group has revealed that it has partnered with US electric vehicle (EV) company Rivian, in a deal worth approximately $5.8bn (€5.5bn). This was an increase from the originally planned investment of $5bn (€4.7bn). 

Volkswagen Group owns brands such as Bentley, Audi and Porsche. Rivian, founded in 2009, is based in Irvine, California. It produces models such as the R1S and the R1T, along with electric delivery vans. 

This deal will allow Volkswagen to include Rivian's technology in its offerings, while also providing the latter with much-needed funding ahead of its R2 model launch in 2025. This is expected to go a long way in helping Rivian, which has been loss-making ever since it was founded. 

Russ Mould, investment director at AJ Bell, said in an email note: "Rivian moved into the fast lane, with its share price trading 9% higher in pre-market trading after strengthening ties with Volkswagen.

"Tesla boss Elon Musk is unlikely to be troubled by the prospect of two rivals working together, but Rivian investors clearly like the prospect of their company becoming closer to Volkswagen."

Volkswagen vehicles using Rivian technology are likely to be launched in 2027. The companies will start off working together in California, but also have plans to set up other operations in Europe and North America. 

This tie-up comes at a time when European car makers see rising competition from Chinese car companies. Dampening demand for electric vehicles has also encouraged a number of EV makers to consolidate and strengthen their position in the current market. 

RJ Scaringe, the founder and chief executive officer (CEO) of Rivian, said in a press release on the company's website: "Today's finalisation of our joint venture with Volkswagen Group marks an important step forward in helping transition the world to electric vehicles. 

"We're thrilled to see our technology being integrated in vehicles outside of Rivian, and we're excited for the future. Rivian will continue to stay focused on creating best in class products and services that benefit our customers, helping to drive EV adoption."

Oliver Blume, the CEO of Volkswagen Group, also said in the press release: "The partnership with Rivian is the next logical step in our software strategy. With its implementation, we will strengthen our global competitive and technological position. Today's launch of the joint venture demonstrates the potential we want to leverage together in the coming years. 

"We have a clear plan to offer our customers the best products and digital experiences at attractive prices through state-of-the-art development processes, innovative technological approaches, and a competitive cost base driven by synergies."

Slow demand and cost pressures continue to hit car makers

Both Volkswagen and Rivian have been impacted by dropping sales, increased costs, rising competition from Chinese electric vehicles and sluggish demand for EVs in general. 

Rivian has faced additional issues such as parts shortages, which have considerably disrupted production, as well as layoffs and roadblocks for new factory plans in Georgia. Similarly, the company has had to recall a very high number of vehicles, while also dealing with losses on deliveries. 

Volkswagen has experienced fewer incentives from countries like Germany and Sweden, along with its scale benefits in China not seeing much growth anymore. The company's China sales have also suffered as more customers turn to cheaper, local alternatives. 

This has led to both companies launching significant cost-cutting initiatives, with Rivian also having to renegotiate supplier contracts and streamline manufacturing operations.