Rivian founder tells traders why incoming shareholder Volkswagen wants his assist to tackle Tesla simply as a lot as he wants the money injection

Volkswagen’s deliberate $5 billion funding in Rivian is a lifeline for the troubled carmaker—however not essentially the one it’s possible you’ll assume.

The cash injection plugs a gap in Rivian’s spending plans, offering much-needed investor confidence in founder R.J. Scaringe at a vital juncture when different EV startups like Fisker are declaring bankruptcy.

However the world’s second-largest carmaker isn’t serving to a U.S. rival out of some altruistic notion to drive the adoption of zero-emission electrical autos.

It’s flat-out determined after years of effort and billions of {dollars} spent making an attempt to slender Tesla’s aggressive edge within the essential subject of car software program with nothing to point out.

In trade for the cash, Scaringe will grant Volkswagen entry to its so-called single stack software program structure, which may have an effect on modifications in each a part of the car from prime to backside, similar to Tesla.

“What we realized over the previous few years is the large issue for incumbent current auto producers to develop their very own full stack software program,” Scaringe advised investors on Tuesday.

The Rivian founder and CEO stated the business’s strategy to software program developed over a number of many years. Numerous digital parts to manage every thing from gas injection to physique management sprang up over time, every with its personal software program. This inevitably led to an more and more tangled internet of elements that struggled to perform as a complete.

“The problem for an incumbent current [automaker] is in the event you constructed a deep dependency on suppliers for making all these ECUs to flip the change to maneuver off of that,” Scaringe stated.

Your typical Volkswagen automobile incorporates 50 to 70 particular person digital management models (ECUs) provided by roughly 200 totally different firms. Engineers have estimated that the annual price to combine them in a car can quantity to a determine within the low a whole bunch of hundreds of thousands of euros for the model, as one thing on the order of 10,000 bugs must be patched by the beginning of a brand new mannequin’s collection manufacturing.

Rivian’s structure would collapse the handfuls of various ECUs Volkswagen employs normally right into a handful, minimizing the quantity of wiring and cables that have to be put in whereas dramatically decreasing complexity and price.

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“I actually deeply consider this is among the hardest issues for current producers to do exactly due to the best way traditionally the electronics and software program area has advanced inside automotive,” Scaringe stated.

Volkswagen’s long-running headache with software program

Quite a lot of EVs just like the Nissan Leaf and BMW i3 hit the market across the similar time that Tesla launched the Mannequin S in 2012, when Elon Musk’s superpower was merely making the know-how fascinating.

However Musk actually revolutionized the business by being the primary to use software program working programs, that are well-known from smartphones, to autos.

This allowed Musk’s firm to continually push out to the fleet new options and updates to house owners over the air properly after they purchased a automobile.

By comparability, conventional automakers focused on constructing and distributing their merchandise wholesale—as soon as a car left the manufacturing unit gate, the connection with the precise finish person belonged to the supplier, and there was little incentive or capacity to supply enhancements.

In 2015, engineers at German automakers started to acknowledge that they weren’t solely years behind Tesla in including new capabilities remotely by way of the cloud, however that software program would more and more come to outline autos shifting ahead.

Are layoffs at VW incoming?

Volkswagen first revealed its plan to develop an operating system of its own able to replicating Tesla’s single software program stack that controls each side of the automobile late in 2017.

Two years later, the duty was assigned to a newly created unit known as Automotive Software program Group, later renamed Cariad.

Nonetheless, even because the time period “software-designed autos,” or SDVs, grew to become the brand new buzzword within the business, makes an attempt to amass the tech sector’s deep experience in coding and its speedy iterative growth strategy proved halting at greatest.

Cariad misplaced €4.5 billion ($4.8 billion) over the previous two years and brought on quite a few product launch delays throughout the VW group.

Along with investing as much as $3 billion in Rivian fairness, Volkswagen will cough up $2 billion to kind a three way partnership with Rivian to develop know-how for such SDVs.

Each carmakers will incorporate the JVs’ know-how within the latter half of the last decade, however Volkswagen’s assertion particularly references its capacity to realize entry to Rivian’s present software program platform within the quick time period as properly.

What this implies for Cariad was not instantly spelled out.

In line with its personal web site, its roughly 6,500 workers worldwide work on “remodeling automobiles into software-defined autos.”

Whenever you boil all of it down, they’ve only one job—now seemingly being taken over by a brand new three way partnership with Rivian.

In an announcement to Fortune, the corporate insisted the Rivian deal would complement Cariad, however UBS analysts aren’t so certain.

“The logical consequence of the brand new partnership appears that VW’s personal software program unit Cariad must be right-sized to keep away from double-spending,” analysts on the Swiss financial institution wrote on Wednesday.

5 years after Volkswagen first started sketching out its software program roadmap and billions of {dollars} later, it appears to be like as if Cariad might have been a bottomless pit this entire time.

This story was initially featured on Fortune.com