Rivian investment a ‘catch-up move’ for Volkswagen that could take years to pay off, advisory firm says

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

Volkswagen and Rivian on Tuesday announced that the German automaker would invest as much as $5 billion in Rivian in the coming years after an initial $1 billion investment.

Rivian shares jumped about 30% in early trading on Wednesday. Meanwhile, Europe-traded shares in Volkswagen were last down 2.3% as of 2:43 p.m. London time.  

"Volkswagen has fallen behind in two areas, on electric vehicles themselves, but also on autonomous driving and other software within the car. And Rivian is strong on both," Mewawalla told CNBC's "Street Signs Europe" on Wednesday.

The investment will therefore help Volkswagen in these areas, but the firm is notably behind in the electric vehicle space, he added.

GlobalData expects Volkswagen's share of battery powered EVs to be just 8% this year, compared with an estimate of 15% for BYD and up to 16% for Tesla, Mewawalla said.

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

"I think it'll take a long time to pay off," Mewawalla said, referring to the investment. "Whilst this is a catch-up move for VW I think it could take several years for it to make an impact on its, on its revenues."

Volkswagen declined to comment further on the deal.

Rivian

Mewawalla signaled that a potential risk is that Rivian is focused on premium cars, whereas many EV makers are focused on the mass market. This means cheap, but high-tech Chinese-made EVs are a threat, he said.

Both the EU and U.S. have expressed concerns about cheap Chinese EVs flooding the global market and crowding out Western companies. The U.S. has raised tariffs on imported Chines EVs, while the EU has announced provisional duties on them. China and the EU are expected to start talks on the issue.