Volkswagen+Rivian?

Volkswagen Group has decided to invest $1 billion in Rivian , an American electric vehicle maker founded in 2009 with its base in Irvine, so they can raise their stake in the company to total $5.8 billion, which accounts for 16% of its total value.

They also announced that Volkswagen and Rivian will launch a joint venture to develop electric vehicle architecture and software. The JV, Rivian and Volkswagen each own 50% share, will be based initially in California with an aim to debut Rivian’s model in 2026 followed by Volkswagen models by 2027.

Some people are saying it is a one-sided tradeoff. Even though Rivian is widely recognized for its cutting-edge EV software technologies, it is still a loss-making startup that needs to secure capital to take the company through the launch and scaleup of profit-making models. Nevertheless, the legendary German automaker has agreed to cover most of the costs to fuel the JV. All it asked its US partner in return was help to ease software problems. Hey, it even agreed to name it ‘Rivian and VW Group Technology’, not the other way around!

Rivian will greatly benefit from the deal. It will receive a significant financial boost and Volkswagen’s know-how on building a scalable platform along with new sales pipelines by integrating their technology in vehicles outside of their own. If their attempt on Volkswagen’s platforms is successful, then they could start expanding the software-as-a-service business for other EV brands.

Volkswagen is the world’s 2nd largest car maker. However, they have been struggling with poor performance and lost its edge as an innovation leader in the recent years. Its revenue in Europe is shrinking due to economic slowdown while its market share in China, the 2nd largest customer base, is on downhill being outclassed and outsized by Chinese EV companies.

Volkswagen’s software track record has been… terrible. Volkswagen is clearly better than Rivian (and Tesla) in ride quality but its terrible software eliminated most of their lead.

It’s not that they didn’t try. Over the past 4 years, they allocated nearly 6,000 people and spent more than 10 billion dollars on the software through its software division Cariad.

It is said that even the top executives of Cariad weren’t part of the talks between Volkswagen Group and Rivian. In an interview, a Carida engineer said that the Cariad team learned about Rivian from the news. It is obvious that the sudden change of strategy is raising doubts and fear throughout the Cariad team, which will likely be absorbed by the JV.

The world is changing. The feature that defines the modern driving experience is no longer the engine but its software. The German maker tried to develop sovereign capabilities so they could adapt to the evolving industry. However, it seems that they came to the conclusion that they should outsource the development of critical software.

So, why Volkswagen is failing where much smaller startups are progressing? Many people say it is a culture problem. According to them, the company has some really good engineers but its bureaucratic culture ruined everything.

Cariad was formed by merging the engineering divisions of Audi and VW’s. Insiders have said that there has been endless friction between those who favored upmarket Audi brands and those who supported upmarket Audi brands. They also said that the company wasn’t clear with its goal and changed its priorities (and the leadership) constantly between focusing on futuristic capabilities to saving costs, fostering in-house development to prioritizing outsourcing. ??

Germany is a country with a skilled talent pool and Volkswagen is the legendary automaker with plenty of resources. It’s their culture, not resources, that is dragging the company down. Some experts are already worried that Volkswagen’s executives will try to regulate Rivian's open mindset with an excuse that they must ensure possible safety issues on German roads.

If they cannot the US start-up’s culture of ‘velocity and lack of bureaucracy’, the $5.8 billion investment might end up being another failure. The way they are sidelining Cariad from their partnership with joining efforts with Rivian is a big red bureaucratic signal.