German car manufacturing giant Volkswagen (VW) said it would invest up to $5 billion (£3.94 billion) in Tesla rival Rivian.
The deal creates a joint venture that will allow VW and the U.S. electric vehicle (EV) maker to share technology.
Since the announcement, Rivian's stock has soared nearly 50%.
The partnership comes as competition among electric vehicle manufacturers intensifies and Western countries move to impose tariffs on Chinese imports.
Under the agreement, Volkswagen said it would initially invest $1 billion in the electric truck and SUV maker and an additional $4 billion by 2026.
Founded in 2009, Rivian has yet to report a quarterly profit. The company lost $1.5 billion in the first three months of 2024.
Like other auto industry giants, VW has been under pressure from competitors like Tesla and China's BYD as it tries to transition away from fossil fuel-powered vehicles.
Meanwhile, some electric vehicle startups are struggling to make inroads in a highly competitive market, while rising interest rates have dampened demand for big-ticket purchases.
The partnership will give VW direct access to Rivian's software, allowing the German automaker to use it in its vehicles.
Auto industry giants such as Volkswagen also face increasing competition from Chinese EV manufacturers that are expanding globally.
Earlier this month, the European Union warned that it would raise tariffs on Chinese electric vehicles by up to 38%.
Chinese and EU officials held talks ahead of the July 4 deadline.
A months-long investigation by the European Commission found that Chinese electric vehicle companies were “unfairly subsidized.”
In response, China called the tariffs a violation of international trade rules and described the investigation as “protectionist.”
This plan comes just one month after the United States said it would increase import tariffs on Chinese electric vehicles from 25% to 100%.
This week Canada said it was considering similar measures to work with its allies.
