US electric vehicle start-up Rivian’s share price continued to rise pre-market on Wednesday following its potential $5 billion deal with Volkswagen Group, Kallanish reports.

The companies announced Tuesday plans to form a 50-50 joint venture in Q4 2024, with the German legacy carmaker initially investing $1 billion in Rivian. VW would invest an additional $2 billion in Rivian’s common shares in two tranches of $1 billion in 2025 and 2026.

Further future investment could see VW injecting up to $5 billion to gain access to the start-up’s “industry-leading” software and electrical architecture, Rivian says.

If all approvals and conditions are cleared, the JV will create next-generation software-defined vehicle (SDV) platforms to be used in both companies’ EVs. In the short term, the JV will enable VW Group to use Rivian’s existing platform, helping it accelerate its SDV plans – currently carried out by its software subsidiary Cariad.  

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

The announcement led to a 50% surge in Rivian’s share price during out-of-hours trading on Tuesday to a peak of $18.43/share. Stock on Wednesday pre-market was up 36.6%, closing at $14.74, up 23.24%.

While the investment offers a boost to the EV maker’s finances – at a time of lower EV demand and rising costs – it also adds questions about the future of Volkswagen’s Cariad. In contrast to Rivian’s soaring shares, Volkswagen Group’s share ended the session down 1.64% on 26 June. 

“The tie-up with Rivian is a further nail in the coffin of VW’s ambition to develop its own in-house standalone software stacks with its problem-prone and heavily loss-making Cariad subsidiary,” Bernstein says in a note.

Andy Leyland, co-founder of SC Insights, a London-based supply chain consultancy firm, adds: “The Volkswagen investment is a good reminder that modern transportation isn’t just about batteries and raw materials. Legacy auto also needs to win in the software space. VW Group vehicles have been a generation behind the latest Chinese offering here so a quick catch-up is essential.”