Rivian (RIVN) shares are surging in extended hours after the adventure EV-maker announced a joint venture deal with Volkswagen (VWAGY), crucially bringing in fresh capital into Rivian’s coffers.

Irving, Ca.-based Rivian's shares were up over 40% in after hours trading.

Volkswagen announced it intends to deal with Rivian to create “next generation software-defined vehicle (SDV) architectures” to be used in both companies’ future EVs. The joint venture will use Rivian’s “zonal hardware design” and platform for the foundation of future vehicles, as well as Rivian’s electrical architecture expertise for the vehicles. Rivian will license its existing IP rights to the joint venture.

In exchange, Volkswagen will invest an initial $1 billion in Rivian through an “unsecured convertible note that will convert into Rivian’s common stock,” with up to $4 billion in additional investment staged through 2026 for a total infusion of $5 billion.

“The partnership fits seamlessly with our existing software strategy, our products, and partnerships. We are strengthening our technology profile and our competitiveness," Volkswagen Group CEO Oliver Blume said in a statement.

“Not only is this partnership expected to bring our software and associated zonal architecture to an even broader market through Volkswagen Group’s global reach, but this partnership also is expected to help secure our capital needs for substantial growth,” Rivian CEO RJ Scaringe said in the statement.

For Rivian, the news of fresh capital allays concerns over the company’s runway as it bridges to towards the release of its next-gen vehicles, the R2 and R3 mass-market SUVs.

In terms of its cash cushion, Rivian said it had $5.98 billion at the end of Q1 versus $7.86 billion at the end of Q4. The additional cash from Volkswagen presumably gives the company more runway as it preps towards producing these new vehicles.

Separately, Rivian CEO RJ Scaringe told Reuters yesterday that it was improving its cost structure and simplifying production at its Normal, IL plant via, among other things, upgrades to its factory equipment.

This story is developing.

Pras Subramanian is a reporter for Yahoo Finance covering the auto industry. You can follow him on Twitter and on Instagram.

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