Volkswagen’s $5bn tie-up with US electric vehicle start-up Rivian has sparked dismay among staff at the German carmaker’s software division Cariad, with top executives sidelined in the sudden change of strategy.
The June agreement to set up a joint venture that will develop software for both companies’ cars followed budget overruns and setbacks at Cariad that pushed back the rollout of new VW, Audi, and Porsche models by nearly two years.
Peter Bosch, who was brought in last year to turn Cariad around, was not part of the talks that led to the deal. Sanjay Lal, a former Rivian executive hired by Bosch as chief software officer, has had to down tools on the architecture he was brought in to develop, said people close to him who added he and his team faced possible absorption into the new JV.
“We all learned about Rivian from the news,” said one senior Cariad engineer, adding that the partnership had unleashed uncertainty and frustration among the division’s 6,000 employees.
The tie-up with Rivian highlights the high stakes for legacy carmakers as they seek to adapt to an industry where the defining feature of modern vehicles is no longer the engine — the hallmark of German engineering prowess — but the software that controls critical aspects of the driving experience.
It also strikes at the heart of the governance issues that have slowed down the attempts by Europe’s largest carmaker to future-proof its vehicles.
The company last week announced it was considering shutting factories in Germany for the first time in its 87-year history, rowing back on a pledge not to cut any jobs before 2029.
Daniela Cavallo, chair of VW’s powerful works council, last week questioned chief executive Oliver Blume’s decision to outsource the development of critical software rather than address failures at Cariad that she said had boiled down to the “egoism” of the group’s competing brands.
“Can we be sure that this won’t be the next billion-euro grave?” she asked.
Since launching Cariad four years ago, VW has poured almost €12bn into building in-house car software to retain control over everything from parking assistance and navigation to battery management systems and cars’ interaction with other devices and apps.
“There’s so much chaos right now,” said another employee of the software unit. “But we know it’s more or less the end of Cariad.”
Bosch declined to comment, while Lal did not respond to a request for comment. A spokesperson for Cariad said Volkswagen’s software strategy included “forming strong development partnerships”, adding “Cariad is part of shaping this overall strategy”.
VW said the deal with Rivian would allow it to “reduce costs per vehicle”, adding the partnership fitted “seamlessly into the existing software strategy”.
Partly because of its lagging software offering, VW has struggled to adapt to modern consumer demands — especially in China, its most important market. The sliding demand for its cars, both in China and at home, has become palpable enough that the company last week said it might have to shut factories in Germany — a historic decision.
The company’s share price has slid more than a third in the past five years, as investors grow increasingly worried about its ability to compete with EV software specialists such as Tesla and China’s BYD.
At last week’s town hall meeting attended by nearly 25,000 VW employees, where some heckled Blume and other executives, Cavallo said “€5bn to a US start-up and here, in Germany [ . . . ] you want to rob us of our prospects”.
Current and former Cariad employees said the unexpected decision to backtrack on plans to build VW’s future software architecture in-house had not only unleashed fear about the future of the division, but sparked concern over whether the new software strategy would work.
Cariad has been beset by budget overruns and delays that have led to the rollout of crucial new models such as Audi’s Q6 e-tron and Porsche’s first electric SUV falling behind schedule.
But the people who worked at Cariad said the software unit had been unfairly blamed for issues they claimed stemmed from the sprawling group’s bureaucratic culture.
Cariad was formed by merging engineering teams from Audi and VW’s flagship brand, a move three insiders said had burdened the new division with legacy projects and led to friction because of the different priorities for the mass-market VW brand and the more upmarket Audi marque.
They added that another factor behind Cariad’s problems was constantly changing priorities from top management. Herbert Diess, VW’s former chief executive who set up the division, directed engineers to concentrate on the so-called 2.0 platform for futuristic software-defined vehicles, which had initially been scheduled for a 2026 launch.
When Blume took over in 2022, he halted progress on the 2.0 platform, instead instructing engineers to prioritise fixing the problems that had delayed the launch of models in the pipeline such as the electric Porsche Macan, the people said.
A year later, Blume sacked all but one of Cariad’s top managers and brought in Bosch, who again changed the unit’s priorities and hired Lal to revive the in-house development of software that could bring VW’s cars into the future.
But even before the partnership with his old employer, Lal — a previous director of engineering at Tesla — had struggled to enthuse VW’s top management during presentations on progress in building a cost-efficient architecture from scratch, said one person briefed on the meetings.
“These guys need to sit in a car, at least in front of a steering wheel, to understand a prototype,” the person said.
A former employee of the software unit said that although “you have some really high-quality engineers at Cariad . . . decisions have never been made by them”. They added many senior software specialists at the unit had grown frustrated by a perceived lack of understanding of software development from VW’s top management.
“It was never a tech problem; it is a culture problem,” said another former Cariad employee.
Analysts reacted positively when VW and Rivian announced they would partner on software for the German carmaker’s future models, with Citi noting management had promised it meant “cheaper access to this (working) technology than could be achieved in-house”.
But it is unknown whether the same bureaucracy that former and current Cariad employees said had stalled VW’s in-house software efforts will hinder the joint venture with Rivian, which will need to deliver solutions that satisfy not only Wolfsburg, where VW is based, but the individual headquarters of the carmaker’s 10 brands.
It is not VW’s first effort to seek outside help on software. The carmaker said in July last year it would pay $700mn for a 5 per cent stake in Chinese EV-maker Xpeng, which in return would help the company develop software suitable for the Asian country’s market.
The collaboration has got off to a good start, according to one person briefed on the progress, who said it came down to the company’s “in China, for China” strategy, which has granted its Chinese JVs the ability to make decisions without running them past executives in Germany.
Wolfsburg-based executives are not likely to accept such an offhand approach for software that will run cars on German roads, although the exact structure of the planned joint venture is still being worked out.
Speaking on a podcast in July, Rivian’s founder and chief executive RJ Scaringe said VW was on board with plans to make sure the JV maintained the US start-up’s work culture of “velocity and speed and decisiveness and lack of bureaucracy”.
“They would not be spending $5bn on Rivian if they didn’t want to keep things working the way they are,” he said.
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