Rivian and Volkswagen Group said last night they would enter a joint venture to develop software defined vehicle (SDV) platforms to be used for both companies’ future electric vehicles.

VW would invest an initial US$1bn in Rivian with up to $4bn in planned additional investment for a total expected deal size of $5bn.

The JV was expected to “build on Rivian’s industry leading software and electrical architecture to create a best in class, software defined vehicle technology platform”.

The JV would be equally controlled and owned and would speed the development of software for both automakers. It was expected to allow both companies to combine their complementary strengths and lower per vehicle cost by increasing scale and speeding up innovation.

Rivian’s proven zonal hardware design and integrated technology platform were expected to serve as the foundation for future SDV development in the JV which would be applied to both companies’ vehicles. Rivian planned to contribute its electrical architecture expertise and was expected to license existing intellectual property rights to the JV.

Both companies aim to launch vehicles using technology created within the joint venture in the second half of the decade.

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In the short term, the JV was expected to enable VW to use Rivian’s existing electrical architecture and software platform.

The plan to boost VW SDV development and switch to a pure zonal architecture.

Each company would continue to separately operate their respective vehicle businesses.

Initially, VW Group would invest $1bn in Rivian through an unsecured convertible note.

A CNBC report said the additional $4bn was expected by 2026 with plans for $1bn each in 2025 and 2026, followed by $2bn in 2026 related to an expected joint venture to create electrical architecture and software technology.

“Significant” work was done over the past months to validate that Rivian’s electrical architecture and software were compatible with VW group vehicles, a statement said.

The two parties currently expect the completion of the JV formation in the fourth quarter of 2024.

Oliver Blume, VW Group CEO, said: “Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture.”

Rivian CEO RJ Scaringe said: “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 recognised this.”

CNBC said Rivian shares soared more than 50% during after hours trading on Tuesday, two days ahead of an investor event for Rivian, which had been under pressure from Wall Street due to its cash burn and significant losses. Rivian stock closed Tuesday at $11.96 a share, down roughly 49% in 2024.

The deal would help Rivian on its journey to become cash flow positive, Rivian CEO and founder RJ Scaringe told CNBC Tuesday night during an investor call.

He noted the capital was expected to carry the company through the production ramp up of its smaller R2 SUVs at its plant in Normal, Illinois, starting in 2026, as well as production of the midsize EV platform at a plant in Georgia where Rivian paused construction earlier this year.

Scaringe also said the expected joint venture would be headed by a “balanced” management group, including two co-CEOs, with Rivian appointing the technical chief and VW a chief operating officer.

CNBC also noted VW would be the second “legacy” automaker to take a stake in the California-based company. Ford was among Rivian’s largest stakeholders, at roughly 12%, alongside Amazon when Rivian went public in 2021. Ford exited Rivian in 2023 after reversing a plan to co-develop EVs with the company.