Shares in Rivian surged after Volkswagen agreed to invest up to $5bn in the Amazon-backed electric carmaker.

Volkswagen will initially invest $1bn as part of a partnership with Rivian to form a new, equally controlled joint venture to share electric vehicle architecture and software, the companies said on Tuesday.

On Wall Street, shares in Rivian’s stock jumped 36% during out-of-hours trading after the announcement.

The deal amounts to a significant win for Rivian, which is grappling with steep losses as it attempts to ramp up production of its electric trucks and sport utility vehicles.

While EV startups have been dealing with a slowdown in demand amid high interest rates and dwindling cash, traditional automakers have struggled to build battery-powered vehicles and advanced software.

The partnership between Rivian and Volkswagen will help Volkswagen accelerate its plans to develop software-defined vehicles (SDV), with Rivian licensing its existing intellectual property rights to the joint venture.

The investment will provide Rivian – known for its flagship R1S SUVs and R1T pickups – the funding it needs to develop its less-expensive and smaller R2 SUVs that will roll out in 2026, the founder and CEO, RJ Scaringe, told Reuters.

Scaringe said the investment was “expected to help secure our capital needs for substantial growth”.

“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,” Scaringe added.

Oliver Blume, CEO of Volkswagen Group, said: “Through our cooperation, we will bring the best solutions to our vehicles faster and at lower cost … We are strengthening our technology profile and our competitiveness.”

Reuters contributed reporting