Volkswagen is joining forces with US electric vehicle manufacturer Rivian to develop the next generation of car software and plans to invest up to five billion dollars in the project.

The Wolfsburg-based carmaker and Rivian intend to establish a joint venture for this purpose, which will be owned equally by both companies. "The partnership is intended to accelerate the software development of the Volkswagen Group and Rivian," said a statement from both companies on Tuesday evening. Rivian's technology will form the basis for the software of future electric car models. "This will be used in the vehicles of both companies", which are to be launched on the market before 2030, VW explained.

Volkswagen has bundled its software development in its subsidiary Cariad, which has repeatedly struggled with problems. Because important software was not ready in time, the subsidiaries Audi and Porsche even had to postpone the launch of new models. According to "Handelsblatt", model launches at Audi have been behind schedule for two years. "Through our collaboration, we will bring the best solutions to our vehicles faster and at lower costs," said Volkswagen CEO Oliver Blume. "The partnership fits seamlessly into our existing software strategy (...). It will strengthen our technology profile and our competitiveness."

The Wolfsburg-based car manufacturer is investing up to three billion euros in Rivian. Founded in 2009, the company is worth around eleven billion dollars on the Nasdaq technology exchange, but is making billions in losses with its electric pickups and off-road vehicles. Rivian shares shot up by 42 percent in after-hours trading - equivalent to around four billion dollars.

As a first step, VW is subscribing to a convertible bond for one billion dollars, which is to be exchanged for Rivian shares in December at the earliest. Volkswagen plans to invest a further one billion dollars in Rivian shares in 2025 and 2026. Volkswagen will spend up to two billion dollars on the joint venture itself, part of which will be due for the licensing of the Rivian software when it is established, which is planned for the end of 2024.

Both companies could benefit from the partnership: Rivian needs fresh money to finance the development of the cheaper and smaller R2 SUV, which is due to be launched in 2026, CEO RJ Scaringe told Reuters. According to Handelsblatt, the company is looking for new partners in view of the losses. The retail giant Amazon, with which Rivian works closely, does not want to inject any fresh money. Rivian had recently cut back production in order to save money.

(Report by Alexander Hübner in Munich and Abhirup Ron in San Francisco, edited by Birgit Mittwollen. If you have any questions, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).