Automotive giant Volkswagen Group and electric vehicle producer Rivian announced today plans to launch a new joint venture, aimed at developing next-generation electrical architecture and software technology to be used in each of the companies’ electric vehicles.

As part of the new transaction, Volkswagen announced that it will invest $5 billion into Rivian, including $3 billion in corporate equity investments in 3 annual tranches and beginning in 2024, and $2 billion of payments into the new JV.

The new joint venture comes as Volkswagen accelerates the shift of its fleet towards electric vehicles. As part of its “Way to Zero” plan unveiled in 2021, the company has committed to have at least 70% of its unit sales in Europe be all-electric vehicles by 2030. Volkswagen has also said that it will produce only electric vehicles in Europe from 2033.

Oliver Blume, CEO of Volkswagen Group said:

“Our customers benefit from the targeted partnership with Rivian to create a leading technology architecture. Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost. We are also acting in the best interest of our strong brands, which will inspire with their iconic products. The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness.”

Technology development under the new JV will be based on Rivian’s integrated technology platform and zonal hardware design, which enables vehicle production with less wiring, lower weight and lower cost. According to Rivian, the platform will be applicable to vehicles ranging from entry level to high performance cars.

Rivian stated that the new investment will provide the company with a “robust capital roadmap,” enabling a pathway to achieve positive free cash flow, in addition to benefits including lower costs per vehicle through the ability to scale its technology. Rivian’s shares surged 39% pre-market following the announcement, after rising nearly 9% on Tuesday.

RJ Scaringe, Founder and CEO of Rivian said:

“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. Rivian was created to help the world to transition away from fossil fuels through compelling products and services, and this partnership is beautifully aligned with that mission.”

Both companies said that they aim to launch vehicles utilizing technology created within the JV in the second half of the decade.