By Abhirup Roy and Ben Klayman

SAN FRANCISCO (Reuters) – German automaker Volkswagen (ETR:) Group will invest up to $5 billion in U.S. electric-vehicle maker Rivian (NASDAQ:) as part of a new, equally controlled joint venture to share EV architecture and software, the companies said on Tuesday.

Shares of Rivian surged about 50% in extended trade after the announcement, potentially supercharging the company’s market value by nearly $6 billion, if gains hold on Wednesday.

The auto industry faces a crucial time as EV startups grapple with a slowdown in demand amid high interest rates and dwindling cash, while traditional automakers have struggled to build battery-powered vehicles and advanced software.

Volkswagen will initially invest $1 billion in Rivian and a further $4 billion later, the companies said.

The investment will provide Rivian the funding necessary to develop its less-expensive and smaller R2 SUVs that are set to roll out in 2026 and its planned R3 crossovers, CEO RJ Scaringe told Reuters.

It will also help Rivian – known for its flagship R1S SUVs and R1T pickups – turn cash flow-positive. The company will license its existing intellectual property rights to the JV.

“Any cash infusion like that is huge. Getting the support of Volkswagen Group certainly really strengthens their story toward Europe and toward Asia eventually,” said Vitaly Golomb, managing partner at Mavka Capital in San Francisco, an investor in Rivian.

For Volkswagen, analysts and investors see this as a move to solve the company’s struggles in software. VW’s software division Cariad – set up under former VW Group CEO Herbert Diess – has exceeded its budget and failed to meet goals. This contributed to Diess’ exit in September 2022.

Volkswagen said earlier this year it was sticking with plans to launch 25 EV models in North America across its group brands by 2030, even as it acknowledged slowing growth in the segment.

Golomb said VW is not a big player in the large SUV and pickup segments in the U.S. and it has failed to break through with its crossover electric SUV ID4. However, this partnership gives the company options, he said.

COST CUTS

Even with losses of nearly $40,000 for every vehicle it delivers, Rivian has been on a steadier footing than other EV makers that have been forced to slash prices to stimulate demand or file for bankruptcy protection.

To keep its head above water, Rivian has been slashing costs even as it works to deliver its EVs on time.

The company has overhauled its manufacturing process, which has led to a 35% reduction in cost of materials, Scaringe told Reuters during an exclusive tour of its facility in Normal, Illinois, last week.

It has also been renegotiating supplier contracts and building some parts in house.

Rivian’s cash and short-term investments fell by about $1.5 billion in the first quarter to just under $8 billion. Before the VW deal, Rivian had said it had enough capital to launch the less expensive and smaller R2 SUVs in early 2026.

“Their recent cost-cutting was one thing to work on, but they were definitely going to need something to get them past the launch of the R2s. This definitely helps extend that range,” said Sam Fiorani, vice president at research firm AutoForecast Solutions.

Traders have bet heavily that Rivian’s stock will fall, with an equivalent of 18% of its shares recently sold short, according to data from S3 Partners.