Anyone who follows the electric vehicle race closely knows that the Volkswagen Group has struggled on the software front for years now. That’s a broad term, but it includes everything from in-car subscription services to over-the-air updates to autonomous driving. But what probably no one expected is that VW’s tech headaches would lead it to a small but scrappy American startup for help. Now, we have a clearer idea of why that happened.

That kicks off today’s edition of Critical Materials, our morning roundup of news from the tech and automotive space. Also on deck: President-elect Donald Trump may target California’s ability to regulate its own vehicle emissions, and we look at Tesla CEO Elon Musk’s big plans for the U.S. government. Let’s dig in.

30%: VW’s Deal With Rivian Was Sparked By Fears Of China’s EV Dominance

It says a lot when the world’s second-largest car company by sales needs backup from a startup that’s never once turned a quarterly profit. But the new $5.8 billion deal between Rivian and VW is a win for both sides: Rivian gets access to capital it badly needs to cross the so-called “Valley of Death” to reach true profitability, and VW gets a “next-generation electrical architecture and best-in-class software technology” for future vehicles. And that tech will serve both companies, too; the Rivian R2 is expected to use it, as is the new Scout Motors vehicles and future electric VWs—including subcompact cars, the companies said in a press release.

And VW gets to lessen its reliance on Cariad, the in-house software division originally created to consolidate and advance what used to be disparate efforts spread across many brands. But Cariad has, perhaps infamously now, become a money pit with frequent layoffs amid important new car delays. 

The Wall Street Journal today explains the other thing that got VW moving: China.  

VW’s big wake-up call was the Shanghai auto show in April 2023, when the carmaker saw firsthand that digital features such as automated driving and voice control were proliferating on Chinese cars, while Cariad kept on missing deadlines.

A few months later, VW announced a deal to collaborate with Chinese startup Xpeng to jointly develop tech-forward EVs. But Steiner said VW knew that using Chinese technology in the rest of the world was a non-starter.  Shortly after, Blume met Rivian CEO RJ Scaringe at the Porsche Performance Center in Atlanta.

The talks ultimately became serious enough for the companies to form “clean teams,” whose members would have been contractually barred from working on similar projects if the deal had fallen through.

Yes, that auto show last year—the first one in China since the COVID-19 lockdowns—was a giant wake-up call to the entire car industry as to how far behind they’d fallen to those homegrown brands. (Which begs the question: how did they not know? It’s not like they haven’t been doing business in China for decades now.) 

And VW and Rivian moved fast here, too: 

By early June, they had stripped down a cutting-edge Audi Q6 e-tron shipped from Germany and fitted it with Rivian’s components as a lab project. The teams then started work turning a second Audi into a demonstrator vehicle that could actually be driven. A third Audi remained untouched as a reference point.

“In former times, we had kind of a claim that if something is not invented here within the VW ecosystem, it might not be good enough. Now this is gone,” said VW’s Steiner. “We cannot push the technological barrier in every area on our own.” 

Of course, the Q6 E-Tron that’s about to be on sale doesn’t use Rivian-derived hardware or software; anything coming to the new cars will be from this joint venture, not from existing components, Scout’s own CEO told InsideEVs recently. 

But the lesson is clear: if any automaker wants a chance in hell to catch up to China’s dominance in the EV race, they need to move at light speed on batteries and software. This should at least help with the latter.

60%: Trump VS. California May Not Be An Easy Fight

“How do we compete with China?” is one of the biggest questions coming up in my discussions with industry officials, analysts and experts in the wake of Trump’s successful re-election bid last week. The former president campaigned heavily against EVs (though he softened somewhat when he joined forces with Musk) and has vowed to roll back fuel economy and emissions rules driving more electrification—and end California’s longstanding power to set its own rules there.

But this isn’t like 2016-2020. That wasn’t so long ago, but China’s auto industry a decade ago was a cash cow, not a competitive threat. Back off in the EV race and America’s automakers sign their death warrants at the hands of BYD; maybe not next year, but eventually. 

So Automotive News previews what the re-elected president could be in for if he targets California: lawsuits, objections from automakers who need to stick with one set of rules so they can advance their technology, the state itself as a voting bloc and even the heavy trucking industry that’s also signed on the Golden State.

The presence of a contractual agreement between the state and automakers, including BMW, Ford, Honda, Stellantis, Volkswagen and Volvo, plus the state’s continuing responsibilities under the Clean Air Act to maintain a certain air quality will complicate a Trump administration effort to block California’s green energy push. 

“It’s obviously open to some question, but I think that the core structures are actually pretty favorable” to California, said Craig Segall, senior vice president of environmental group Evergreen Action and a former deputy executive officer with the California Air Resources Board.

[…] Beyond the agreements, automakers may take different approaches. John Boesel, CEO of clean transportation organization Calstart, said the ones that stay committed to the zero-emission push “will be rewarded in the long term.”

“I do wonder if the president is going to follow through on his previous commitment to undermine California’s authority,” he said. “He certainly seems willing to let states set their own policy regarding abortion.”

“This is the fight that California has been preparing for,” one analyst said. Then again, the same can be said of Trump.

90%: How Will Elon Musk Run The U.S. Government And Tesla? A Primer

Photo by: Tesla

You, a normal and sane person, may have seen the news last night that Trump will in fact appoint Musk to “head up” a “Department of Government Efficiency” alongside former GOP presidential candidate Vivek Ramaswamy. No, it wasn’t just a campaign meme; it’s actually happening. Supposedly. 

Musk said during Trump’s campaign that he would want to help reduce the size, restrictions and spending of the federal government, although he saves particular ire for regulations that get in the way of his own companies. But what can he really do here, and how will he still run Tesla on top of such a monumental job?

That’s because this is more like a consulting gig, it turns out. More from Axios today in its morning newsletter: 

Trump said in the announcement statement that the “department” will actually be outside the government. He said it could become the “Manhattan Project” of our time — a reference to the atomic race during World War II.

Musk said: “This will send shockwaves through the system, and anyone involved in Government waste, which is a lot of people!”

Fact check: It’s essentially a non-governmental commission with no power other than to recommend things for people in power to do.

Congress could grant it official powers. But lawmakers are skeptical.

It also has an end date, Trump said, of July 4, 2026. So no, if anyone asks, Musk is not going to be leading some cabinet-level new division of the government (like when George W. Bush established the Department of Homeland Security after 9/11) but rather advise on where to cut. And it sounds like Ramaswamy will be managing whatever the day-to-day is.

But no one should underestimate Musk’s clout here, especially after delivering such a victory for Trump. If regulations around everything from autonomous cars to spaceflight look different in the coming years, we may well trace it back to him.

100%: How Can The Trump Administration Help The Auto Sector Keep Up With China?

Ford F-150 Lightning At Tesla Supercharger

We’ll have more on this in the coming days. But given that Trump 2.0 is going to have a very different take on EVs than Biden did, and at a very different time in history, what does success look like in your mind?

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