Compile | Yang Yuke
Edit | Ge Bangning
Produced by | Bangning Studio (GBNGZS)
At the beginning of this year, several camouflaged Audis secretly arrived in Palo Alto, California, a factory of the American electric car company Rivian. There, about 30 engineers dismantled Audi's electronics and fitted them with Rivian wiring harnesses and modules.
In the days that followed, the modified Audis underwent intensive testing at the Palo Alto plant to determine whether the Rivian's architecture and software would work properly on the Audi.
Two people familiar with the matter told Reuters that the secret operation was to find out whether the Volkswagen Group's future electric vehicles could benefit from Rivian's advanced technology.
A third person confirmed that some Audi vehicles were indeed shipped to California.
The results speak for themselves. On June 26, 2024, the Volkswagen Group announced that it intends to inject $5 billion into Rivian to establish a technology joint venture to develop software for electric vehicles. The details are as follows:
First, Volkswagen Group and Rivian each hold 50 percent of the shares. The Volkswagen Group will invest up to USD 2 billion in the joint venture, half by the end of 2024 and the other half by the end of 2026. These investments will be made through direct equity and loan agreements.
Second, the Volkswagen Group will invest $3 billion directly in Rivian, to be evenly distributed between 2024 and 2026. The first tranche of US$1 billion will be made in 2024 through mandatory convertible notes, with the rest linked financially and technically to subsequent years.
Based on Rivian's current market capitalization, Volkswagen Group will invest $3 billion and will acquire a 25% stake in the company, surpassing Amazon, the company's current largest shareholder.
On the same day, Volkswagen Group CEO Oliver Blume said: "By working together, we will provide the best solutions for our cars faster and at a lower cost. This collaboration fits seamlessly with our existing software strategy, products, and partnerships. ”
What does the Volkswagen Group want
What is certain is that Rivian can get what it needs most from trading – cash. But the Volkswagen Group's returns are less clear.
Rivian's problems focus on financial and operational aspects. Its electric cars have a good reputation, but they are still in the red, putting it in trouble.
And Volkswagen Group, a master of large-scale production that generates huge operating cash flow — analysts agree that it will be around $38 billion this year — has yet to master the sophisticated software needed to build cutting-edge electric vehicles.
Combining these two skills looks like a win-win situation. That's just theory, though. The reality will depend in part on how well the parties work together in the proposed joint venture.
In the case of the Volkswagen Group, the key issue of capital efficiency has long plagued its stock market. It could end up investing $5 billion in Rivian and the joint venture, which would add complexity and cost to the internal organization if it were outside of the internal investment budget.
The joint venture will be operated by a co-CEO from each of the two companies and will focus on the electric vehicle electrical architecture.
It's a system that connects and controls vehicle electronics, increasingly delivering over-the-air updates through a "software stack." Done right, it can make electric vehicles both smart and electric. This technology is much more difficult for traditional automakers than just replacing gasoline engines with batteries and electric motors, because it requires a different kind of engineering.
Electric vehicles such as the Volkswagen Group's ID.4, which are praised for their hardware, have been criticized for their infotainment systems, especially in China. Last year, Volkswagen Group invested in Xpeng Motors for software for the local market.
The deal with Rivian follows a similar pattern.
Rivian's share price surged 36% in pre-market trading, and while the market may retreat later, it already reflects that investors are much less exposed to risk thanks to a strategic backer.
Rivian plans to hold an Investor Day on June 28. It expects to consume $4.1 billion in cash this year. As a result, the deal with the Volkswagen Group could not have come at a better time to answer questions about financial viability.
Volkswagen Group, on the other hand, saw its preferred stock fall 2% at midday the next day. The Volkswagen Group's cash flow investment ratio is much higher than that of its peers. The deal with Rivian forced it to lower its automotive free cash flow forecast to 3.5 billion euros, equivalent to $3.7 billion.
If we can launch a first-class car in cooperation with Rivian in the United States and Xpeng in China, it will be a victory for the Volkswagen Group. However, in order for investors to profit, the German company also needs to limit its domestic software investments to avoid the usual waste and duplication.
This can be the harder part for a company with a large state-owned stake and an unusual union dominance.
"It's like a game"
The tightly guarded deal came as a surprise to the automotive industry and investors. Previously, details about this had never been reported.
"Considering the amount of work that has been done, I think this is an achievement in itself." Rivian CEO RJ Scaringe told Reuters.
Rivian and the Volkswagen Group are committed to "strict secrecy" to see if the electrical topology and everything else is really feasible and if they can achieve it, a source said.
The deal is crucial for both companies.
In Rivian's case, it provides a financial lifeline that allows it to survive a sharp slowdown in EV demand, producing a lower-priced R2 in the hope of becoming profitable. At the same time, it will help the company to obtain more favorable deals from suppliers and purchase parts on a larger scale with the support of the Volkswagen Group and its brands.
In the case of the Volkswagen Group, the deal brings low-cost, high-performance electric vehicle technology that is difficult for traditional automakers to master.
CARIAD, the software division of the Volkswagen Group, was established in 2020 to compete with Tesla, the market leader in electric vehicles. But the division's work has been riddled with delays and losses, partly due to slow decision-making by the group's management.
Scaringe says the negotiations that led to the dramatic partnership began with a private meeting between him and Blume at the Porsche Experience in Atlanta.
According to two sources, the meeting took place in August last year.
"We had an in-depth discussion about the product and exchanged ideas about what we liked. We immediately realized that we had a common interest in cars. Soon, we had a serious conversation about how we could work together. Scaringe said.
The two companies then began their work. That fall, a Rivian team quietly visited the Volkswagen Group's plant in Germany.
On June 26, Scaringe told a company meeting that the tests to make sure everything worked together were "like a race," according to a source.
Earlier this year, lawyers and software experts traveled to Germany again.
Wassym Bensaid, head of Volkswagen Group's software business, told analysts that to overcome the difficulty of integrating disparate work cultures, leadership agreed to embrace Rivian's agility. He said "very clear rules and responsibilities" had been put in place for joint ventures.
His comments were intended to allay concerns among Volkswagen Group investors about whether the group's traditional, rigid approach to car manufacturing and multi-supplier contracts would conflict with Rivian's flexible approach to software.
The deal was finalized after Rivian tested Audi in Palo Alto, a source said. Audi arrived in California in the first quarter of this year and has been in financial negotiations over the past few months.
Both companies still need to undergo full testing to ensure that Volkswagens with Rivian software can drive at full functionality.
"It's not something we just thought about a month ago." Rivian told Reuters, "It's been a long-term job. ”
Scaringe has been a Porsche enthusiast since he was a child, and he has restored classic 356s. For him, it was a match made in heaven. "I'm very excited to see a Porsche with our technology on the road," he says. ”
Ending CARIAD?
The partnership is the latest in a series of deals Blume has made since taking office. In September 2022, after the departure of Herbert Diess, he took over as CEO of the Volkswagen Group.
Switching from internal combustion engine vehicles to electric vehicles requires expertise in areas ranging from charging to batteries to software, where the Volkswagen Group has historically lacked experience.
The software division CARIAD, led by Diess, was founded in 2020 with the hope of creating a technology culture at the Volkswagen Group that competes with Tesla.
But the effect is not ideal. Analysts blamed part of the group's failure for its failures on mismanagement and slow decision-making.
Blume is looking outward for solutions, from Xpeng in China to Rivian in the U.S., where he plans to gain software expertise from BEV startups. These startups have developed this technology from scratch.
Is this the end of CARIAD?
The answer is that it is possible – at least in its current form.
When asked about CARIAD, Blume said CARIAD plays a "significant role" in the Volkswagen Group and that the Rivian deal is a "complement" to the existing software strategy.
Peter Bosch, CEO of CARIAD, said the partnership will speed up CARIAD's work and reduce costs.
However, the responsibility for the "2.0 architecture" of "software-defined vehicles" will now be assumed by joint ventures. "Software-defined vehicles" is a major software revolution aimed at unifying the operating system across the Volkswagen Group.
The partnership with Rivian has significantly reduced the operations of the CARIAD division, raising questions about how long the division will remain an independent entity.
Since its inception, CARIAD has experienced several delays, layoffs, restructuring and other setbacks. Its name has become a kind of microcosm of the difficulties of the industry as a whole. The challenges faced by CARIAD also explain why the Volkswagen Group turned to Rivian for support.
On top of that, the deal actually traces back to a lesson in the Volkswagen Group's history – the "dieselgate" scandal that shocked the industry and led the company to promise to one day go all-electric.
To become fully electric, the Volkswagen Group needs a Tesla-like approach to software and digital technology. Historically, for the automotive industry as a whole, "software" has consisted of driver-facing parts such as engine management, infotainment, and navigation, as well as numerous components produced by different vendors of different software standards, which often do not communicate with each other.
Compared to the smartphones and tablets that have become an integral part of our lives over the past 20 years, it seems fragmented and old-fashioned.
This won't work in a world where cars will be defined by over-the-air software updates and downloadable paid features that could mean new revenue streams. For example, battery management for electric vehicles, or integrated DC fast chargers, or advanced autonomous driving assistance systems, until one day, fully autonomous vehicles arrive.
The car of the future will be more like a computer on wheels, so now the Volkswagen Group and other companies need to do a good job of making computers. The alternative is for them to become coachbuilders for tech companies or, worse, to be completely wiped out by new players who are better at it.
To be fair, almost every "traditional" automaker is trying to adapt its century-old business to do the job. But the Volkswagen Group's CARIAD division in particular has suffered some particularly striking setbacks.
Software issues led to negative reviews for early models such as the Volkswagen ID.4, leading to delays in key products such as the new Porsche Macan EV and Audi Q6 E-Tron. There's also the latency of entire platforms, such as the one that underpins the flagship Project Trinity, relying on an external partner like Mobileye to enable autonomous driving, rather than doing everything in-house.
The situation is bad. With the Volkswagen Group losing market share in China and struggling to grow in North America, it cannot afford such a bad outcome in the future.
And Rivian is doing some really cool things.
Rivian's new electrical architecture and computing platform reduces the number of electronic control units used to control vehicles from 17 in the first generation to seven. This new regional structure allows it to cut more than 1.6 miles (2.57 km) of wires per vehicle, saving 44 pounds (nearly 20 kilograms) of weight and enabling cars to be built faster.
Within Rivian, the new electrical structure is seen as a key innovation, enabling the company to update software over-the-air. The new zonal architecture supports Rivian's software stack, which is developed and deployed in-house by Rivian.
It's not just "software", it's a rethinking of the way cars are designed and manufactured. The Volkswagen Group has tried several times, but they have all failed.
It is important to note that the partnership with Rivian will not turn the Volkswagen Group's misfortunes around overnight. In fact, it takes years for this partnership to bear fruit. In all likelihood, the Volkswagen Group will find a way to buy time with more traditional products, but only if Rivian survives to that day.
（本文部分内容综合Automotive News、Reuters、WSJ、Inside EVs、Tech Crunch报道，部分图片来自网络）