VW Revs Up Rivian
I like this tie-up:
Volkswagen, the German automaker, said on Tuesday that it would invest up to $5 billion in Rivian, a maker of electric trucks that has struggled to turn a profit, and that the companies would cooperate on software for electric vehicles.
The deal creates an unusual alliance between the world’s second-largest carmaker and an electric vehicle start-up that has strained to live up to investors’ expectations that it would achieve the kind of success that made Tesla the world’s most valuable automaker.
Tesla, to state the obvious, is vulnerable. They deserve a massive amount of credit for getting the electric vehicle market to where it is right now, but the fact remains that their vehicles are shoddy. This was somewhat understandable in the early days, but issues remain over twenty years into the company's life and over fifteen years after they shipped their first car. The Cybertruck, beyond being an affront to design and taste, seems to be even more problematic in this regard, with recall after recall after recall after recall happening.
Rivian has pretty much the exact opposite problem. Their vehicles are beautiful and seemingly very well made. But that precision comes at a cost.
The cheapest vehicle Rivian currently sells, the R1T pickup, starts around $70,000, a price that has limited its sales to affluent early adopters. Its R1S S.U.V. starts at $75,000. Even at those prices, Rivian lost $39,000 for every vehicle it sold in the first three months of the year.
That was never a long-term viable strategy, but it especially isn't in 2024, with cheaper electric cars from China and elsewhere now flooding the market. Rivian lost $1.4B in the first quarter of 2024. The stock price was down around 90% from its heights when it went public around the heyday of Tesla stock euphoria.
VW, I think, is getting a good deal. But it's also getting something far more tangible:
Vehicles using the software developed by the new joint venture will go on sale during the second half of the decade, Volkswagen said. Any of Volkswagen’s brands, which include Audi and Porsche, could use the technology, Mr. Blume said. Scout, the American off-road brand that Volkswagen is reviving at a factory under construction in South Carolina, could also use the software.
In a way, I'm reminded of two things from the history of Apple. First, when the company acquired NeXT. Yes, it brought Steve Jobs back into the fold, but it also bought them NeXTSTEP, the software that would go on to form the underpinnings of OS X (now macOS) and later, iOS.1 Second, when Jobs, back at Apple, had to accept an investment lifeline from Microsoft.
To be clear, the parallels aren't particularly strong as this deal is all kinds of different. But it sort of feels like same type of smart deal on both fronts for Rivian and VW. And if it works out, would anyone be shocked to see VW actually outright acquire Rivian? As The Financial Times notes:
The first $1bn from VW comes in the form of a convertible note, which converts into Rivian stock in December 2024. The investment includes $3bn of corporate equity and $2bn of payments from VW related to the joint venture.
So they will be significant shareholders not only in the joint venture, but in Rivian itself. And unlike Ford, which had a stake in the company and offloaded it when times got tough, VW seems to know what it's doing, not just taking out some flier. If they can get Rivian revved up, bringing their new, less expensive models to market...
One more thing: you know who remains a largest shareholder in Rivian? Amazon. Ostensibly this is for access to their delivery vehicles, but might they step in to buy the company before VW can? Probably not for delivery vehicles, but if they need to continue to expand into new markets that can move the revenue needle... Then again, maybe Apple's failings here will give them pause. Then again, again, maybe Apple should have just bought Tesla back in the day. Or a company like Rivian now...
1 I don't have a good sense of Rivian's software prowess, but it's interesting -- if annoying to many people -- that they refuse to integrate with Apple's CarPlay software (also derived from NeXTSTEP way back when!). They're confident they can and should own the whole stack, as it were.