Rivian investment is 'catch-up' move to Volkswagen, consulting firm says

Volkswagen's $5 billion investment in electric vehicle startup Rivian is a “catch-up move” for the German automaker, but it could take years to pay off, according to Cyrus Mewawalla, head of objective intelligence at GlobalData.

Volkswagen and Rivian announced on Tuesday that the German automaker will invest up to $5 billion in Rivian in the coming years after an initial investment of $1 billion.

Rivian shares rose 42% in pre-market trading on Wednesday. Meanwhile, Volkswagen shares traded in Europe were down 2.6% as of 12:47 a.m. London time.

“VW has fallen behind in two areas, in electric vehicles themselves, but also in autonomous driving and other in-car software. Rivian is strong in both,” Mewawala told CNBC's “Street Signs Europe” on Wednesday.

He added that the investment will help Volkswagen in these areas, but the company is noticeably behind in the field of electric vehicles.

GlobalData expects Volkswagen's share of battery electric vehicles to be just 8% this year, compared to an estimate of 15% for BYD and up to 16% for BYD. TeslaMowawala explained.

Volkswagen said deliveries of fully electric vehicles fell 3.3% year-on-year in its first-quarter 2024 results, citing market conditions and spare parts shortages. The automaker added that it delivered 136,436 fully electric vehicles in the first three months of the year.

“I think it will take a long time to pay off,” Mewawala said of the investment. “While this is a catch-up move for VW, I think it could take several years for it to have an impact on their revenues.”

Volkswagen declined to comment further on the deal.

Mewawalla noted that a potential risk is that Rivian is focused on luxury vehicles, while many electric vehicle makers are focused on the mass market. This means that Chinese-made electric cars are cheap, but high-tech, they pose a threat, he added.

Both the European Union and the United States have expressed concerns about cheap Chinese electric cars flooding the global market and crowding out Western companies. The United States has raised tariffs on electric cars imported from China, while the European Union has announced temporary tariffs. China and the European Union are expected to start talks on the issue.