German struggling auto giant Volkswagen, facing tough competition from tech-savvy U.S. and Chinese rivals, has recently partnered with a Californian electric vehicle maker to build software and save its EV strategy.
Europe's biggest automaker, which is battling falling profits and a wave of labor strikes at home, last month sealed a partnership with Irvine-based outfit Rivian.
Together, they plan to build the operating system for VW's battery-powered cars from 2026 onwards – an endeavor that has, until now, sapped the German firm's finances.
The tie-up between the mammoth VW group and the West Coast startup founded in 2009 is a "high-risk" move for Volkswagen, said Ferdinand Dudenhoeffer from the Center Automotive Research (CAR).
But it reflects changing times, when increasingly complex intangible components, from heads-up displays to assisted-driving features, have taken on greater importance than classic hardware.
Competitors such as Elon Musk's Tesla and Chinese EV-makers have built much of their success on the computing systems and digital gizmos built into their cars.
Legacy manufacturers have been forced to choose: to outsource the software development, as Swedish carmaker Volvo chose to do, or hire engineers to build their own systems from the ground up.
Working with more established companies like Google's parent Alphabet "takes the risk out" of software development, which has become a key part of the auto business, Dudenhoeffer told Agence France-Presse (AFP).
The latter strategy was the one Volkswagen initially picked when, in 2020, it founded its software unit Cariad, a subsidiary that now employs some 5,500 people in Europe.
But its troubles became a burden for the Wolfsburg-based manufacturer. Development delays cost former CEO Herbert Diess his job and the group tens of billions of euros, said Dudenhoeffer.
Diess erroneously thought he could turn "a classic car manufacturer into a tech company," Dudenhoeffer said.
Overhauling a big conglomerate like Volkswagen, with its 10 different brands and byzantine corporate structure, is a particularly difficult task, said Andreas Nienhaus of consulting firm Oliver Wyman.
The "inertia" of such groups holds back innovation, Nienhaus said.
Oliver Blume, who took over as Volkswagen CEO in 2022, put an end to the "revolution" from within.
But the new VW chief is in a hurry to change things all the same, with the carmaker losing market share to new entrants at home and abroad – most critically in China.
Volkswagen is being rattled by arguably the biggest crisis in its 87-year history.
Management went public this year with plans to shut factories in Germany, a drastic and unprecedented step.
The threatened plant closures triggered a wave of strikes, with unions promising "bitter" resistance to cuts.
As for Cariad, the software subsidiary has already cut 30% of administrative staff this year with the aim of slashing development costs by 20%.
The unit will continue to have an "important role," according to Blume, looking after the tech updates in many of the group's models.
Around 300 of its employees in China will continue to develop a bespoke software system with local partner XPeng.
Another 150 will join the joint venture with Rivian, a Cariad spokesperson told AFP.
There, they will be managed by Rivian's software chief Wassym Bensaid, who is responsible for making Volkswagen's systems lighter, faster and more competitive.
While Rivian is much smaller than VW – the U.S. group's production figures are in the tens of thousands, not the millions – it is less encumbered by bureaucracy than its German business partner.
Whether the two together can turn things around in time to save Volkswagen's electric strategy remains to be seen.
But already, said the Cariad spokesperson, the group's software strategy is now "clearer than ever."
