VW Group said Tuesday it will invest $1 billion into EV startup Rivian as part of a broad software development deal that could expand to as much as $5 billion.

The deal, which was announced Tuesday afternoon, sent Rivian’s shares up more than 36% in after-hours trading.

Under the deal, VW Group will use Rivian’s existing electrical architecture and software platform. All VW Group brands are included in this deal, which could bring Rivian DNA into storied brands like Porsche and Audi and even EV upstart Scout.

Initially, VW will invest $1 billion into Rivian via an unsecured convertible note that will convert into Rivian’s common stock subject to certain conditions upon the later of receipt of regulatory approvals and December 1, 2024. VW Group is expected to invest a further $4B as part of the transaction, they said.

The deal is designed to benefit both companies, according to the companies. Rivian has a deep need to lower the cost of manufacturing its vehicles and to pad its balance sheet as it tries to scale production of existing R1 EVs and develop and bring its future R2 line to market. VW Group, meanwhile, has struggled with its software development and plans to bring so-called software-defined vehicles to market.

“The nature of our partnership and the nature of what we’ve announced today is really born out of a very aligned view around the importance of product excellence in the things that we design and ultimately in the products that we deliver to customers,” Scaringe said.

The news comes just weeks after Rivian started producing the next-generation of its R1T pickup truck and R1S SUV, an upgrade that reworking the guts of its vehicles, changing everything from the battery pack and suspension system to the electrical architecture, interior seats and sensor stack. Rivian’s new electrical architecture and compute platform reduced the number of electronic control units (ECUs) used to control the vehicle from 17 different ECUs in its first generation to seven. This new zonal architecture allows Rivian to cut more than 1.6 miles of wiring from each vehicle — a 44-pound weight savings — and to build its vehicles faster.

That new electrical architecture — or what Scaringe describes as new vehicle topography — is seen internally as a key innovation at Rivian. That new zonal architecture supports the Rivian’s software stack, which was also developed and deployed in house. That software stack includes everything related to real-time operating systems (RTOS) that manage the car, such as thermal dynamics, ADAS and safety systems, as well as another layer related to the infotainment system.