Why VW is Investing $5.8 Billion Into Rivian: For Internal Organs

[mkg3]

Short and easy read. Not extensively detailed but you'll get a sense of VWG's rationale.

https://www.topgear.com/car-news/electric/volkswagen-reveals-why-its-ploughing-58bn-rivian

“Also the complexity in our group, it has to work for at least 10 brands. It's not simple. So we decided the best way to do it is this way.”

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[lefkonj]

You could use the R1S skateboard put the re-worked Q7, Q8, Cayenne, Toureg on top and it would sell.

 

[R1SFamilyGuy]

Looks like Scout Motors will also benefit along with other VW brands from this.

one thing I’m trying to understand as others have mentioned it (but went over my head): what does Rivian get from this besides the money, obviously. And the JV will have it’s expenses too - does it come from the $6b entirely so Rivian gets less than $6b?

TIA! And appreciate your responses. I’m a dummy when it comes to economics

 

[UnsungZero_OldTimeAdMan]

Looks like Scout Motors will also benefit along with other VW brands from this.

Scout employees present at CES have said it aloud. There is no guessing.

What does Rivian get from this besides the money, obviously. And the JV will have it’s expenses too - does it come from the $6b entirely so Rivian gets less than $6b?

The known list:

• Additional headcount to work on software and computing hardware that is shared
• Additional funding to increase head count to work on software/hardware that isn't shared
• Additional funding to grow service network and RAN
• Additional headcount to develop and ensure R2 and R3 launches, mass market models that are critical to the company's sustainability
• Potentially expand joint venture to include lumping shared hardware/component orders, from suppliers, into one large order for greater economy of scale for both parties. Both RJ and VW chiefs have said this out loud.
• If above potential does not realize, [VW Group being #2 globally by volume] the joint venture gives Rivian more clout to negotiate with suppliers (and potentially have suppliers compete/bid against one another for Rivian's orders. RJ said this at and after announcement of the joint venture.

Mutually beneficial opportunities exist beyond this list. For instance, speculating... What if Rivian were to tap in to VW Group's financial arm for consumer lending? What if Rivian were to combine forces with VW Group on roadside assistance? What if the two joined together to cut a deal with Enterprise for service loaners/rentals in one large contract? All of these things could help cut costs for both parties.

 

[captainjp]

Scout employees present at CES have said it aloud. There is no guessing.



The known list:

• Additional headcount to work on software and computing hardware that is shared
• Additional funding to increase head count to work on software/hardware that isn't shared
• Additional funding to grow service network and RAN
• Additional headcount to develop and ensure R2 and R3 launches, mass market models that are critical to the company's sustainability
• Potentially expand joint venture to include lumping shared hardware/component orders, from suppliers, into one large order for greater economy of scale for both parties. Both RJ and VW chiefs have said this out loud.
• If above potential does not realize, [VW Group being #2 globally by volume] the joint venture gives Rivian more clout to negotiate with suppliers (and potentially have suppliers compete/bid against one another for Rivian's orders. RJ said this at and after announcement of the joint venture.

Mutually beneficial opportunities exist beyond this list. For instance, speculating... What if Rivian were to tap in to VW Group's financial arm for consumer lending? What if Rivian were to combine forces with VW Group on roadside assistance? What if the two joined together to cut a deal with Enterprise for service loaners/rentals in one large contract? All of these things could help cut costs for both parties.

I speculate that with shared platforms will come shared servicing. Rivian will authorize VW dealerships to service their vehicles.

 

[Viking80]

I speculate that with shared platforms will come shared servicing. Rivian will authorize VW dealerships to service their vehicles.

I would buy an R1T the day of this announcement. I currently live 4 hours from the nearest service center.

 

[ThirteenElectrics]

Fundamentally, the joint venture distracts Rivian from its core R&D mission (in serving VW's interests), arguably removes some competitive advantages, and enables a direct competitor in the Scout to come to market more quickly. It's a bad move, but they may have had no choice, as they really, really need the cash and the margin improvements. They're still bleeding hard. Desperate times, desperate measures.

Ten years from now, VW and Scout will be bigger than ever, and what will Rivian have to distinguish itself?

 

[BigSkies]

Looks like Scout Motors will also benefit along with other VW brands from this.

one thing I’m trying to understand as others have mentioned it (but went over my head): what does Rivian get from this besides the money, obviously. And the JV will have it’s expenses too - does it come from the $6b entirely so Rivian gets less than $6b?

TIA! And appreciate your responses. I’m a dummy when it comes to economics

I've mostly been able to follow the financial deal. I think I have it 80% figured out, but am probably missing decent parts of it.

The money is the short term benefit.

The second benefit is that the future development of this platform has been spun out of Rivian into a Joint Venture owned by both Rivian and VW. This allows them to share development expenses.

The exact details aren't public, but here's an example of how it might work. Let's say Rivian was spending $200M per year on R&D for the components under this JV. Going forward, maybe Rivian is paying $100M to cover this effort and VW is paying $100M. Or maybe Rivian is covering it out of the $5.8B. We don't know the details, but there likely is some elements of shared costs going forward.

I also remember hearing some speculation that Rivian and VW will roll joint-purchasing into the JV. That would be big if it happens. Components ordered in the millions are significantly cheaper than components ordered in the tens-of-thousands. This is all speculation though.

 

[Mark_AZR1T]

Fundamentally, the joint venture distracts Rivian from its core R&D mission (in serving VW's interests), arguably removes some competitive advantages, and enables a direct competitor in the Scout to come to market more quickly. It's a bad move, but they may have had no choice, as they really, really need the cash and the margin improvements. They're still bleeding hard. Desperate times, desperate measures.

Ten years from now, VW and Scout will be bigger than ever, and what will Rivian have to distinguish itself?

This is an intriguing take, and I largely agree. Rivian’s predicament isn’t due to missteps alone but rather a perfect storm of market conditions, timing, rising interest rates, and the general public’s lukewarm embrace of EVs. Unfortunate timing left them with little choice but to pivot—and I must say, they’ve spun it masterfully.

 

[Donald Stanfield]

Scout employees present at CES have said it aloud. There is no guessing.



The known list:

• Additional headcount to work on software and computing hardware that is shared
• Additional funding to increase head count to work on software/hardware that isn't shared
• Additional funding to grow service network and RAN
• Additional headcount to develop and ensure R2 and R3 launches, mass market models that are critical to the company's sustainability
• Potentially expand joint venture to include lumping shared hardware/component orders, from suppliers, into one large order for greater economy of scale for both parties. Both RJ and VW chiefs have said this out loud.
• If above potential does not realize, [VW Group being #2 globally by volume] the joint venture gives Rivian more clout to negotiate with suppliers (and potentially have suppliers compete/bid against one another for Rivian's orders. RJ said this at and after announcement of the joint venture.

Mutually beneficial opportunities exist beyond this list. For instance, speculating... What if Rivian were to tap in to VW Group's financial arm for consumer lending? What if Rivian were to combine forces with VW Group on roadside assistance? What if the two joined together to cut a deal with Enterprise for service loaners/rentals in one large contract? All of these things could help cut costs for both parties.

My comment is in relation to the text in green above. Look at the Scout and notice all the similar interior parts. Small little accent components from the R1 are all over the Scout's interior. Maybe they sourced those from Rivian for their concepts. If that's the case it would mean those shared parts orders you're talking about which will reduce Rivian's cost basis for their R1 parts.

RJ is a smart guy and the more I see of his business strategy the more respect I have for him. That's why I'm a Rivian stockholder, I think they are doing the right things.

 

[cevans]

I speculate that with shared platforms will come shared servicing. Rivian will authorize VW dealerships to service their vehicles.

Zero chance that happens. Manufacturers rebadge vehicles all the time and the "real" manufacturer's dealership network is not authorized to work on it. Remember that the money in the industry is in service and repair, not vehicle sales. If Rivians were allowed to be serviced at VW dealers that revenue stream would go to dealer owners not Rivian. Dealers are a drag on brand profitability.

does Rivian get from this besides the money, obviously.

Money is 90% of it. That money isn't cash that Rivian gets to walk away with but it keeps Rivian from going bankrupt (wiping out shareholder equity entirely) and allows them to continue to develop the platform with the hope that one day the whole operation will be successful. You might see some shared efforts for the next generation platforms - perhaps the scout and the Gen 3 Rivian will have shared components - but the VW mindset is VERY NOT a start up one. They have failed multiple times to build a software-based vehicle, so I'd project that the two visions will start to diverge in a few years.

 

[captainjp]

Zero chance that happens. Manufacturers rebadge vehicles all the time and the "real" manufacturer's dealership network is not authorized to work on it. Remember that the money in the industry is in service and repair, not vehicle sales. If Rivians were allowed to be serviced at VW dealers that revenue stream would go to dealer owners not Rivian. Dealers are a drag on brand profitability.



Money is 90% of it. That money isn't cash that Rivian gets to walk away with but it keeps Rivian from going bankrupt (wiping out shareholder equity entirely) and allows them to continue to develop the platform with the hope that one day the whole operation will be successful. You might see some shared efforts for the next generation platforms - perhaps the scout and the Gen 3 Rivian will have shared components - but the VW mindset is VERY NOT a start up one. They have failed multiple times to build a software-based vehicle, so I'd project that the two visions will start to diverge in a few years.

That’s absolutely false. Dealerships can and will work on any make/model vehicle they’re comfortable with. As for warranty work, that’s a different story.

 

[cevans]

That’s absolutely false. Dealerships can and will work on any make/model vehicle they’re comfortable with. As for warranty work, that’s a different story.

It is amazing how incredibly wrong you can be in so many ways...

#1 - please read before replying. My response was to the suggestion that "Rivian will authorize VW..." Manufacturers do not, and never have and never will, "authorize" a different dealer brand to work on their vehicles, even if those brands have some equity partnership.

#2 - dealers can work on anything they want, but, the diagnostic tools required to handle specific modules are not universal. You aren't in the industry, obviously, so you wouldn't know this, but a dealer will not have the proprietary scan tools and "mothership connection" required to do anything more than basic repairs on a different vehicle. The universal "OBD" protocol is an emissions-based requirement. (this was discussed years ago here https://www.rivianforums.com/forum/threads/does-rivian-have-an-obd-ii-obd-2-port.984/)

 

[sdemeester]

Big fish eat little fish. That’s the way things go. We will see how long Rivian can avoid being eaten

 

[HaveBlue]

VW: our existing software is perfect.
Also VW: we are going to implement Rivian's software.

Anyone know who else rivian is negotiating on this? They mentioned there is another.

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