Volkswagen to invest initial $1B in US electric carmaker Rivian

German vehicle manufacturer Volkswagen Group will invest an initial $1 billion in American electric vehicle maker Rivian, the companies announced Tuesday in a joint statement. 

An additional investment of $4 billion is planned, while the total size of the deal is expected to be $5 billion, they said.

The joint venture aims to create the next generation software-defined vehicle (SDV) architectures to be used in both companies' future electric vehicles, according to the statement.

It is also expected to build on Rivian's software and electrical architecture to create an SDV technology platform, it added.

The partnership will allow both companies to lower per-vehicle costs by increasing scale and speeding up innovation.

Both firms aim to launch vehicles benefitting from the technology created under the agreement in the second half of this decade, said the statement.

"Since the earliest days of Rivian, 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 recognized this," Rivian founder and CEO RJ Scaringe said in the statement.

Scaringe said the deal will bring Rivian's software and architecture to an even broader market through Volkswagen's global reach while also securing the company's capital needs for substantial growth.

Volkswagen Group CEO Oliver Blume said customers will benefit from the agreement with Rivian which will create a leading technology architecture.

"Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost," he said in the statement.

“The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness."

Rivian shares skyrocketed after the announcement of the agreement as they jumped 46.4% on the Nasdaq in after-hours trading shortly after Tuesday's closing bell.