German car making giant Volkswagen (VW) says it will invest up to $5bn (£3.94bn) in Tesla rival Rivian.
The deal creates a joint venture that will allow VW and the US-based electric vehicle (EV) maker to share technology.
Rivian shares jumped by almost 50% after the announcement.
The tie-up comes as competition intensifies between EV makers and Western countries move to impose tariffs on Chinese imports.
Under the agreement, VW said it will initially invest $1bn in the electric truck and SUV maker, with another $4bn to be put into the company by 2026.
Founded in 2009, Rivian has not yet posted a quarterly profit. In the first three months of 2024 the company saw a net loss of more than $1.4bn.
VW, like other motor industry giants, has come under pressure from rivals like Tesla and China’s BYD as it tries to make the shift from fossil fuel-powered vehicles.
Meanwhile, some EV start-ups have struggled to make headway in the highly competitive market and as higher interest rates hit demand for big ticket purchases.
The partnership will give VW immediate access to Rivian’s software allowing the German car maker to use it in its cars.
Motor industry giants like VW have also been facing growing competition from Chinese EV makers, which have been expanding globally.
Earlier this month, the European Union (EU) warned that it will raise tariffs on Chinese EV imports by as much as 38%.
Officials from China and the EU have held talks ahead of a 4 July deadline.
A months-long investigation by the European Commission found that Chinese EV companies had been “unfairly subsidised”.
In response, China said the tariffs violated international trade rules and described the investigation as “protectionism”.
The plan came just a month after the US said it will increase import levies on Chinese EVs from 25% to 100%.
This week, Canada said that it was considering a similar move to align itself with allies.
Separately on Tuesday, Tesla said it would recall most of its Cybertrucks sold in the US over issues with their windscreen wipers and exterior trim.
The recalls cover more than 11,000 of the vehicles, which first went on sale at the end of November last year.