Volkswagen’s $5 billion investment in electrical automobile startup Rivian is a “catch-up transfer” for the German automaker, however may take years to repay, based on Cyrus Mewawalla, head of thematic intelligence at GlobalData.

Volkswagen and Rivian on Tuesday introduced that the German auto maker would make investments as a lot as $5 billion in Rivian within the coming years following an preliminary $1 billion funding.

Rivian shares have been up 42% in premarket buying and selling on Wednesday. In the meantime, Europe-traded shares in Volkswagen have been final down 2.6% as of 12:47 a.m. London time.  

“Volkswagen has fallen behind in two areas, on electrical automobiles themselves, but additionally on autonomous driving and different software program inside the automobile. And Rivian is powerful on each,” Mewawalla instructed CNBC’s “Avenue Indicators Europe” on Wednesday.

The funding will due to this fact assist Volkswagen in these areas, however the agency is notably behind within the electrical automobile area, he added.

Globaldata expects Volkswagen’s share of battery powered EVs to be simply 8% this 12 months, in comparison with an estimate of 15% for BYD and as much as 16% for Tesla, Mewawalla defined.

Volkswagen stated deliveries of all-electric automobiles have been down by 3.3% year-on-year in its 2024 first quarter results, citing market circumstances and shortages of elements. The auto maker added that it delivered 136,436 all-electric automobiles within the first three months of the 12 months.

“I believe it will take a very long time to repay,” Mewawalla stated, referring to the funding. “While it is a catch up transfer for VW I believe it may take a number of years for it to make an impression on its, on its revenues.”

Volkswagen didn’t instantly reply to CNBC’s request for remark.

Mewawalla signaled {that a} potential threat is that Rivian is concentrated on premium vehicles, whereas many EV makers are targeted on the mass market. This implies low-cost, however high-tech Chinese language-made EVs are a risk, he stated.

Each the EU and U.S. have expressed considerations about low-cost Chinese language EVs flooding the worldwide market and crowding out Western corporations. The U.S. has raised tariffs on imported Chines EVs, whereas the EU has introduced provisional duties on them. China and the EU are anticipated to start talks on the problem.