BERLIN/FRANKFURT, June 26 (Reuters) - Volkswagen

, Europe's biggest carmaker, plans to spend as much

as $5 billion on an electric vehicle (EV) software partnership

with U.S.-based Rivian.

Here are some of the key issues around the deal:

WHY IS VOLKSWAGEN DOING THIS?

The tie-up is the latest in a string of deals by Volkswagen

Chief Executive Oliver Blume, who took over in September 2022

after the ousting of Herbert Diess.

Shifting from combustion engine to electric cars requires

expertise in areas where historically Volkswagen has little

experience, from charging to batteries to software.

Diess set up software unit Cariad in 2020, hoping to develop

a tech culture to rival Tesla's.

It hasn't worked, with delays and losses plaguing the unit,

a failure analysts have blamed partly on the group's sprawling

management and slow decision-making.

Blume is looking outwards for a fix, doing deals with Xpeng ( XPEV )

in China and now Rivian in the United States to tap software

expertise from EV-only startups that have developed the

technology from a clean slate.

WHAT DO THE PARTNERS BRING TO THE TABLE?

Volkswagen brings scale, and funds. The money it's putting

up allows Rivian to develop more models and cut operating costs

by leveraging volume.

Rivian brings its intellectual property on software, which

will go into both Rivian cars like the R2 and, later on,

Volkswagen Group cars from brands including Audi and Porsche to

the revived Scout brand.

The first cars to have the full Rivian stack - software,

central computer and wiring - are to hit the road from 2028. But

it might be possible to incorporate parts of the technology into

earlier models. Rivian has already tested components from Audi

to see how they can be combined with its technology.

WHAT'S THE DEAL STRUCTURE?

Broadly speaking, the deal has two elements.

One is a planned 50:50 joint venture (JV) between Volkswagen

and Rivian to develop state-of-the-art EV software. Volkswagen

will invest up to $2 billion into the JV, half at the end of

2024 and the rest at the end of 2026. The investments will be

made via direct equity and loan agreements.

The other element is Volkswagen directly investing up to $3

billion in Rivian, to be spread evenly over 2024-2026. While the

first tranche will be via a mandatory convertible note in 2024,

the other two are tied to undisclosed financial and

technological milestones in subsequent years.

Based on Rivian's current market value, a $3 billion

investment would get Volkswagen a 25% stake in the U.S. company,

moving it ahead of current top shareholder Amazon ( AMZN ).

IS THIS THE END OF CARIAD?

Possibly - at least in its current form.

Asked about Cariad, Blume said it had a "big role" for

Volkswagen, calling the Rivian deal a "supplement" to boost the

existing software strategy.

Cariad boss Peter Bosch said the partnership would speed up

Cariad's work and lower costs.

But responsibility for the so-called '2.0 architecture' of

the 'software-defined vehicle' - a major software overhaul to

unify operating systems across the Volkswagen group - now sits

in the JV.

That leaves a lot less on the unit's plate, raising

questions about how long it will continue as a standalone

entity.

IS THIS A DE-RISKING MOVE BY VOLKSWAGEN?

In part, yes.

Volkswagen has done a similar deal with Xpeng ( XPEV ) in

China, as part of its strategy to make its business there

self-sustainable as global trade tensions rise.

Volkswagen said the Rivian software could technically be

rolled out anywhere in the world, but nothing's decided yet.

In addition, the deal strengthens Volkswagen's ties with the

United States, where the carmaker is aiming to double market

share by 2030 as a potential counterweight to China, its biggest

single market.

ARE INVESTORS HAPPY?

Not yet.

Volkswagen's shares fell following the announcement, with

analysts noting the high investment that has led the company to

cut its net cash flow guidance for its automotive division to

2.5-4.5 billion euros ($2.7-$4.8 billion) from 4.5-6.5 billion.

Some analysts have also warned it could be hard to integrate

Rivian's fast-paced startup culture with Volkswagen's

multi-brand structure, which is considered slower and more

rigid.

Others, including brokerage Stifel, say the group should

sell assets to simplify rather than buy them, citing the group's

majority holding in truck division Traton.

($1 = 0.9349 euros)