Potentially, This Decision Could Be Rivian's Most Noteworthy Move Yet.
Rivian (with a share price decrease of 2.70%) has a plethora of captivating plans that keep investors engaged. The company has a clear roadmap with its forthcoming R2 model, scheduled for release in the first half of 2026, followed by the R3 and R3X, all of which will be more budget-friendly than their R1 ancestors. Rivian even intends to sell the R2 internationally, boosting its global expansion. The electric vehicle (EV) manufacturer aims to achieve profitability in the fourth quarter and for the entire year 2025.
However, a crucial decision that could significantly benefit Rivian and its investors in the long term was not highlighted: Its strategic choice to manage its software, electrical architecture, and other vital vehicle components internally.
Most automakers, including luxury vehicle makers and hybrid manufacturers, primarily focus on selling their products for the end consumer. But Rivian saw the worth in the technology it was creating for its EVs.
There's a possibility that Rivian could repackage some of its EV software technology and electrical infrastructure for sale to other automakers. This could lead to partnerships or joint ventures, investments by other automakers such as Volkswagen, or new income streams.
Incidentally, Volkswagen and Rivian announced their joint venture at a higher value than initially anticipated. Their joint venture, valued up to $5.8 billion, aims to offer advanced electrical architecture and integrated software for both automakers' EVs based on Rivian's current technology.
"The partnership with Rivian is the next logical step in our software strategy," said Oliver Blume, CEO of Volkswagen Group, according to Automotive News. "With its implementation, we will enhance our global competitive and technological position."
Rivian believes it could eventually become the industry's preferred partner for unique technologies, and its joint venture with Volkswagen underscores this notion. From the outset, Rivian has focused on integrating essential vehicle components and software, electrical hardware, propulsion, and autonomy. The latter two areas are not part of the Volkswagen joint venture and remain solely under Rivian's control.
Interestingly, Rivian's software technology attracted investment from Volkswagen, which essentially covers Rivian's near-term expenses. In fact, the expected capital from Volkswagen in the partnership, along with Rivian's cash and cash equivalents, should provide enough capital to fund both operations until the R2's launch and production ramp-up, and its midsize platform, which will commence production in its upcoming Georgia plant.
The Big Payoff
In a broader sense, an enhanced focus on software development and digital automotive services is a trend that investors will continue to see. In fact, revenue from digital automotive services is projected to increase by 25% annually through 2035, from $42 billion in 2023 to $610 billion in 2035, according to a report by the Oliver Wyman Forum.
As vehicles become increasingly loaded with high-tech features, options, software, driver assistance technology, and digital automotive services, owning more of the technology in a vehicle could prove to be highly beneficial.
While Rivian has plans for overseas vehicle deliveries and several new model launches in the coming years, it's clear that for now, Rivian's most lucrative strategic decision was to own the technology that attracted Volkswagen's attention. That decision should continue to form a significant part of Rivian's investment thesis and will prove beneficial as the company expands into a global EV manufacturer.
Investing in Rivian's shares could potentially yield significant returns, given its strategic decision to manage critical vehicle components internally and attract investments from automakers like Volkswagen. This internal management and external partnerships could lead to new income streams and reduce near-term expenses.
Furthermore, as automotive technology continues to evolve, Rivian's focus on software development and digital services could position it as a preferred industry partner, potentially benefiting from the projected 25% annual increase in revenue from these services between 2023 and 2035.
