Currently reading: What is Rivian's software secret that Volkswagen so covets?

German giant recently agreed to invest $5 billion in the troubled American EV start-up, with its code the prize

The Volkswagen Group sold more cars in Poland in just five months this year than Rivian sold globally throughout the whole of 2023.

The American EV start-up lost the equivalent of £1.16 billion in the first quarter, while the German giant made a profit of £3.9bn.

Rivian’s stumbles to create a credible car company have already knocked out one prominent investor in Ford, but that hasn’t stopped Volkswagen agreeing to invest $5 billion.

Ford thought that Rivian’s EV skateboard platform would be the key feature that could help electrify its Lincoln premium brand, but that proved a false dawn amid the hype around start-ups in the early days of the pandemic.

Volkswagen reckons that the real pearl in the grit of Rivian’s uneconomical set-up is the company’s grasp on software and modern electrical architectures.

Of its $5bn planned investment, $2bn will go into creating a joint-venture company to create next-generation software-defined vehicle (SDV) architectures.

That gives Volkswagen access to the newest ‘Gen2’ version of the electronic architecture that Rivian will fit into its upcoming cheaper R2 and R3 EVs, as well as “across a wide range of vehicles within the Volkswagen Group,” Rivian CEO RJ Scaringe told investors last week.

The investment, which hands VW around 20% ownership of Rivian, was broadly welcomed by the investment community.

“It demonstrates our view that Rivian’s E/E [electric/electronic] architecture and SDV assets have significant value,” analyst Philippe Houchois from the bank Jefferies wrote in a note to investors. 

So what exactly does Rivian have that Volkswagen doesn’t? Volkswagen’s struggles to upgrade its E/E architectures for the modern software age are well documented. This investment is another reminder that that its much vaunted software arm Cariad hasn’t managed to achieve what it set out to when it was established five years ago. 

The delays in rolling out new software has pushed back launches key new vehicles – including the Porsche Macan Electric and the first ever Bentley EV. It also cost the job of the divisional CEO and contributed to the exit of Group CEO Herbert Diess.

Rivian had the advantage of starting from scratch. ”From the very beginning of Rivian, we said we need to own the electronics in the vehicle,” an understandably jubilant Scaringe told investors last week after the Rivian-Volkswagen tie-up was announced.

“That allows us to own the way we think about the network architecture, and that importantly allows us to own not just the software stack but [also] own how the hardware within the vehicle evolves.”

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The difference in approach to software and electronic hardware can be compared to that of two homeowners. Rivian has bought a plot of land and planned a house fit for the modern age. In true Grand Designs style, the build has gone wildly overbudget, but it works. Meanwhile, Volkswagen is renovating a Georgian pile. Cost and time constraints mean that it’s cheaper and easier to bodge the existing structure. So Volkswagen has eyed up Rivian’s gaff and decided that in the future it wants to copy the same structure for itself.

Scaringe told investors that Rivian would never have been able to upgrade its architecture from Gen1 to Gen2 at the speed it has done with legacy industry methods.

“It wouldn't have been possible in the time that we did,” he said. “We’d have had to coordinate across 50-60 different ECUs [electronic control units] across a variety of tier-one suppliers.”

This Gen2 architecture uses seven powerful ECUs (essentially miniature computers), down from 17 in Rivian’s current EVs. The four biggest of those computers control different ‘zones’, for example one for autonomy functions and another for infotainment. It also reduces the length of wiring needed by 1.6 miles per car and shaves 20kg off the total weight, Rivian said.

Rivian is planning to first roll out the Gen2 architecture in its R1T pickup and R1S SUV this winter, it said. The architecture will also be used in the smaller R2 and R3 that it plans to build in its new factory in Georgia.

Rivian said it had added 500 new features to its R1 range over the past two-and-a-half years via more than 30 over-the-air software updates. 

Customers of the Volkswagen ID3 and other EVs meanwhile are complaining on social media that they're still having to go to dealerships to get software upgrades – a neccesity the digital revolution was supposed to do away with.

Rivian claims 80% of its software is programmed in-house, giving it enviable ability to push through features that existing users have called for.

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“We have the ability to make the vehicle better and better over time,” Rivian software chief Wassym Bensaid told investors. “When our customers wanted to add have [charging] prescheduling, we could do it.” 

Bensaid gave the example of a customer who configures her car back to her commuting preferences after the weekend, including temperature and music streaming through her phone. “In the legacy auto world, we would need [to communicate] with 30-plus ECUs in order to do it. This is 30-plus suppliers, with 30-plus [types of] black-box software – different interfaces, different requirements, different integration, different test methodology,” explained Bensaid.

Starting from scratch is a luxury available to start-ups, led by Tesla’s approach and continuing with the likes of Rivian and Chinese firms such as Nio, Xpeng (also a Volkswagen partner) and Leapmotor (now partially owned by Stellantis). 

These manufacturers are getting closest to the ideal software-defined vehicle, which car makers see as the key to unlocking new revenue from additional digital features.

The big question now is where exactly is Volkswagen going to embed Rivian’s Gen2 architecture. The first cars with the system are expected in 2027, which is about the same time that the first EVs based on Volkswagen's new SSP Sports premium EV platform are due (from PorscheAudi and Bentley).

Could the Rivian network of wiring, computers and sensors really be transferred in full to the pinnacle of Volkswagen’s range? How would that fit with existing tech-focused supplier relationships, for example active safety specialist Mobileye and chipmaker Qualcomm? 

The other significant question is where this leaves Scout, Volkswagen's incipient American electric off-roader brand, which will compete directly with Rivian.

“[We] wonder why Volkswagen is maintaining its €5bn investment in Scout,” UBS bank analyst Patrick Hummel said in a note. “We would see significant potential overlap with Rivian here.”

Rivian is in early talks with Volkswagen to take the partnership beyond software, Germany’s Handelsblatt newspaper reported on Tuesday.

Rivian denied that it had plans to build vehicles with Volkswagen in response to the story, but the fact that both companies are poised to start building billion-dollar plants in the southern US is likely to force the question as to whether they should join forces in more ways than just software.

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