The Volkswagen Group will invest up to $5 billion in US EV maker Rivian in a complex deal under which the two companies will form an equally-owned joint venture to share EV architecture and software.

As reported by Reuters, Volkswagen will immediately invest $1 billion in Rivian through a convertible note, and also pledges to invest $2 billion more in Rivian stock—a billion each in 2025 and 2026—subject to the startup hitting certain milestones, and to provide a $1-billion loan in 2026.

Rivian will license its existing intellectual property to the joint venture, in which Volkswagen will invest $1 billion. Both companies aim to launch vehicles using technology created by the JV “in the second half of the decade.” Meanwhile, the Volkswagen Group will be able to use Rivian’s vaunted zonal electrical architecture and software platform. Each company will continue to separately operate their respective vehicle businesses. Rivian’s upcoming R2 will be the first vehicle to use software from the JV. EVs from Volkswagen Group brands, including Audi, Porsche, Lamborghini and Bentley, will follow.

The deal appears to play to each company’s strengths: Rivian (like most startups) needs cash, and Volkswagen (like most legacy automakers) has struggled with the software aspects of electrification.

The investment will provide Rivian with the funding it needs to launch its less expensive and smaller R2 SUV in 2026, and to develop its new R3 crossovers, CEO RJ Scaringe told Reuters. He added that the partnership will enable Rivian to cut costs by taking advantage of Volkswagen’s economies of scale with chip and component suppliers.

Rivian has been slashing costs, redesigning its manufacturing process and starting to build some parts in-house, but it’s still burning through cash (Reuters reports that the company’s cash and short-term investments fell by about $1.5 billion in the first quarter to just under $8 billion).

“Any cash infusion like that is huge,” said Vitaly Golomb, Managing Partner at Mavka Capital, a Rivian investor, told Reuters. “Getting the support of Volkswagen Group certainly strengthens their story toward Europe and toward Asia eventually.”

VW’s software division, Cariad, has been struggling to integrate software from a range of suppliers (in contrast to the unified software architecture used by Tesla and other EV brands), and this has delayed the launch of important new EV models, Reuters tells us.

Volkswagen says the Rivian software will also be used by its off-road EV brand Scout, which is building a plant in South Carolina to assemble pickups and SUVs that could be seen as Rivian competitors.

“Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost,” said Oliver Blume, CEO of the Volkswagen Group. “The partnership fits seamlessly with our existing software strategy, our products and partnerships. We are strengthening our technology profile and our competitiveness.”

“Since the earliest days of Rivian, we have been focused on developing highly differentiated technology, and it’s exciting that one of the world’s largest and most respected automotive companies has recognized this,” said Rivian founder and CEO RJ Scaringe. “Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership also is expected to help secure our capital needs for substantial growth.”

Wall Street appears to dig the deal, at least as far as Rivian is concerned—RIVN stock, which had lost around half its value this year, soared by 25% the day after the announcement.

Sources: Rivian, Reuters