Rivian (RIVN) stock rose as much as 16% in early afternoon trade on Wednesday after the EV maker announced an expansion of its partnership with Volkswagen (VWAGY), with the German automaker pouring more money into a joint venture.

The joint venture (JV), initially announced back in June, will use Rivian’s electrical architecture — known as “zonal architecture” — and accompanying software stack to enable the launch of Rivian’s upcoming midsize R2 SUV in the first half of 2026.

In a new development, Rivian tech will also underpin the expected launch of new Volkswagen EVs “as early as 2027.”

The joint venture will begin operations today, initially in North America and eventually expanding to Europe, and will also support the development of EVs in the subcompact segment. Volkswagen will increase its total deal investment to $5.8 billion from $5 billion.

VW has already invested $1 billion in the form of a convertible note into the JV and will inject around $1.3 billion for background IP licenses and a 50% equity stake in the joint venture.

The remaining $3.5 billion is expected to come “in the form of equity, convertible notes, and debt at future dates,” assuming milestones are met.

The deal notably does not include any collaboration on battery tech, platforms, or electric drive units, a Rivian spokesperson confirmed to Yahoo Finance.

“This partnership will provide capital needed for the R2 ramp and GA plant R2/R3 midsize platform which we view as a large step in the right direction and a key move for Rivian going forward,” Wedbush analyst Dan Ives wrote in a note Wednesday morning.

“While [the VW deal] is an exciting announcement for us to see and finally launch, in the eyes of the Street, the focus will still remain mostly on the R1 execution plans, production, optimization, the Georgia plant, and the profitability story for Rivian over the next quarter/12 months,” Ives added.

Last week, Rivian revealed in its Q3 financial results that it expects a wider-than-expected full-year loss due to a supply chain parts issue, but the company still expects a “modest gross profit” in Q4.

Wedbush maintained its Outperform rating and $20 price target following the announcement of the expanded deal.

Volkswagen's need for Rivian's software expertise is no surprise, as the company’s CARIAD software unit has been plagued by development delays and software bugs, impacting the launch of VW group vehicles like the Porsche Macan EV and other Audi vehicles.

For Rivian, the capital infusion provides a runway to production of the upcoming volume R2 vehicles.