Daily Management Review

Hidden Audis, Secret CEO Meeting: The Story Of VW's $5 Billion Rivian Gamble


Hidden Audis, Secret CEO Meeting: The Story Of VW's $5 Billion Rivian Gamble
Early this year, a few Audis disguised in German arrived covertly to an electric vehicle (EV) manufacturer's plant in California. There, thirty experts dismantled the cars' electronics and installed harnesses and modules from a U.S. company.
The Palo Alto facility underwent extensive testing to verify the functionality of the U.S. startup's software and architecture, which govern nearly every aspect of the German automobiles.
According to two sources close to the transaction, the goal is to determine if Rivian's cutting-edge technology may be useful for future electric vehicles from Audi parent Volkswagen. According to a third, certain Audi vehicles were transported to California.
The end result: After the two automakers agreed to a technological joint venture, the largest automaker in Europe said on Tuesday that it will invest up to $5 billion in Rivian.
The car industry and investors were caught off guard by the highly guarded deal. Not much has been known about how it happened before.
"I think it's an accomplishment in its own right that this hasn't leaked, given the amount of work that's already happened... and the number of people involved across our teams," RJ Scaringe, the chief executive officer of Rivian,
One of the individuals told Reuters that Rivian and Volkswagen wanted to be "super secretive," with the goal of "seeing if the electrical topology and everything would actually work and if they could pull it off."
Sources close to Reuters claim that wide-bodied 777 and 787 aircraft will begin arriving at clients' destinations in a matter of days.
The three sources requested anonymity because they lacked permission to provide the media access to this information.
Requests for response from Volkswagen and Rivian outside of US and European work hours were not immediately answered.
This is an important deal for both businesses.
It offers Rivian, which is well-known for its R1S SUVs and R1T trucks, the financial support it needs to construct its more affordable R2 SUVs, weather a severe downturn in EV demand, and, perhaps, start turning a profit.
With the support of Volkswagen and its brands, which include Audi, Porsche, Lamborghini, and Bentley, it may also enable the business to negotiate lower prices with suppliers while acquiring parts in larger quantities.
On Wednesday, shares of Rivian surged by 23%.
The agreement gives VW access to high-performance, affordable EV technologies that conventional automakers have found difficult to adopt.
Delays and losses have plagued the group's software business Cariad, which was established in 2020 to compete with Tesla as the leader of the EV industry. This has been partially attributed to the management team's slow decision-making.
The negotiations that resulted in the significant merger started, according to Scaringe, when he and Oliver Blume, the CEO of Volkswagen, had a private meeting at Porsche's Atlanta experience centre.
Per two accounts, the meeting took place in August of last year.
Telling reporters, "We just went deep, talking product and comparing notes on the things we like," Scaringe appeared serious. The fact that we have certain common automotive interests became apparent right away. That quickly sparked a serious discussion on how we should approach cooperating."
The businesses went right to work, with a Rivian team visiting Volkswagen in Germany later that autumn.
According to one insider, Scaringe compared the testing to a scrimmage to ensure that everything functioned as intended during a business town hall on Wednesday. According to this person, attorneys and software specialists made a second journey to Germany early this year.
According to a fourth person who spoke to Reuters, Volkswagen was less "dogmatic" than it had been under Blume over what it should undertake alone and where it should look for outside partners.
Wassym Bensaid, the software head for Volkswagen, told investors on Tuesday that the company's leadership had decided to embrace Rivian's agility in order to get over the challenge of integrating drastically different work cultures, which frequently befalls such mergers. He added that the JV had "very clear rules and responsibilities" established.
His remarks were intended to allay worries held by VW investors over potential conflicts between Rivian's agile software methodology and the company's more conventional, methodical approach to automaking and numerous supplier contracts.
On Wednesday, shares of VW dropped 2%. Concerns about Volkswagen spending more arise from the company's large capital expenditures in comparison to its counterparts.
According to a source, financial discussions over the previous several months resulted in a certain agreement on the transaction after Rivian tested the Audis in Palo Alto, which arrived in the first quarter of the year.
A fifth source, who was close to Volkswagen, stated that comprehensive testing is still necessary for the firms to ensure that VW vehicles equipped with Rivian software can operate fully.
Scaringe told Reuters on Tuesday, "This isn't as if it's something that we thought of a month ago." "This has been a long work in progress."
It was a perfect fit for Scaringe, who rebuilt antique 356s and was an avid Porsche aficionado growing up.
"To be able to see a Porsche on the road that has our technology in them, I couldn't be more excited," he stated.