SAN FRANCISCO/BERLIN, June 27 (Reuters) - A few

camouflaged Audis arrived secretly from Germany early this year

at a facility of electric vehicle (EV) maker Rivian in

California, where some 30 engineers stripped the electronics and

fitted them with the U.S. startup's harnesses and modules.

Intense testing followed at the Palo Alto facility of how

the U.S. startup's architecture and software - controlling

virtually every function - would work in the German cars.

The mission: to see whether future EVs from Audi parent

Volkswagen could benefit from Rivian's

advanced technology, two people close to the deal told Reuters.

A third confirmed that some Audis were shipped to California.

The result: Europe's biggest carmaker said on Tuesday it

would pump as much as $5 billion into Rivian as the two

automakers agreed to a technology joint venture.

The closely guarded deal took the auto industry and

investors by surprise. Details on how it came about have not

previously been reported.

"I think it's an accomplishment in its own right that this

hasn't leaked, given the amount of work that's already

happened... and the number of people involved across our teams,"

Rivian CEO RJ Scaringe told Reuters.

Rivian and Volkswagen sought to be "super secretive," aiming

"to see if the electrical topology and everything would actually

work and if they could pull it off," one of the sources told

Reuters.

The three sources asked not to be named because they were

not authorized to provide these details to media.

Volkswagen and Rivian did not immediately respond to

requests for comment outside business hours in Europe and the

U.S.

'A SERIOUS CONVERSATION'

The deal is crucial for both companies.

For Rivian, known for its R1S SUVs and R1T pickups, it

provides the financial lifeline it needs to survive a sharp

slowdown in EV demand, build its less expensive R2 SUVs and, it

hopes, turn profitable.

It may also help the company get better deals from suppliers

while procuring components in bigger volumes with the backing of

Volkswagen and its brands including Audi, Porsche, Lamborghini

and Bentley.

Rivian shares jumped 23% on Wednesday.

For Volkswagen, the deal brings low-cost, high-performance

EV technology that traditional automakers have struggled to

master.

Work at the group's software unit Cariad - set up in 2020 to

rival EV market leader Tesla - has been riddled with

delays and losses partly seen as a result of sluggish

decision-making by the group's management.

The talks that led to the dramatic tie-up began, Scaringe

said, when he and Volkswagen CEO Oliver Blume met privately at

Porsche's experience center in Atlanta.

Two sources said the meeting was in August last year.

"We just went deep, talking product and comparing notes on

the things we like," Scaringe told reporters. "There was

immediate realization that we have some shared vehicle

interests. Quickly that led to a serious conversation as to how

can we look at working together."

'LONG WORK IN PROGRESS'

The companies got to work straight away, with a Rivian team

visiting Volkswagen in Germany that fall.

The testing to make sure everything worked together was

"like a scrimmage," Scaringe told a company townhall on

Wednesday, according to one source. Another trip to Germany

followed early this year with lawyers and software experts, this

person said.

Volkswagen was less "dogmatic" than it had been previously

under Blume about what it should do itself and where it should

seek external partners, a fourth source told Reuters.

To overcome the difficulty of integrating starkly different

work cultures that often plague such deals, Volkswagen

leadership agreed to embrace Rivian's agility, its software

chief Wassym Bensaid told analysts on Tuesday. He said "very

clear rules and responsibilities" had been set for the JV.

His comments were aimed at alleviating VW investor concerns

about whether the company's traditional, more methodical

approach to automaking and multiple supplier contracts would

clash with Rivian's nimble software approach.

VW shares fell 2% on Wednesday. VW investors also worry

about Volkswagen spending more when it already has high capital

expenditure compared to its peers.

Certainty on the deal came after Rivian ran tests on the

Audis in Palo Alto, which arrived in the first quarter of the

year, leading to financial talks over the past couple of months,

one source said.

A fifth person, close to Volkswagen, said the companies

still need to do full-fledged tests to make sure VW vehicles

with Rivian software can drive with complete functionality.

"This isn't as if it's something that we thought of a month

ago," Scaringe told Reuters on Tuesday. "This has been a long

work in progress."

For Scaringe, who grew up as a Porsche enthusiast and

restored classic 356s, it was a natural fit.

"To be able to see a Porsche on the road that has our

technology in them, I couldn't be more excited," he said.