Shares of Alphabet, the Mountain View, Calif., advertising and tech giant, at last check were up 0.6% to $1,441.84.
Volvo will design and manufacture the vehicles, the companies said, while Waymo will work on the artificial intelligence and certain hardware, including cameras, lidar and radar.
"Through our strategic partnership, we will first work together to integrate the Waymo Driver into an all-new mobility-focused electric vehicle platform for ride hailing services," Waymo said in a statement.
Waymo, which is also developing technology for self-driving commercial trucks, said it has partnerships with Fiat Chrysler Automobiles (FCAU) - Get Report, Jaguar Land Rover and Renault Nissan Mitsubishi.
In March, Waymo raised $2.25 billion in a round led by Silver Lake, Canada Pension Plan Investment Board, and Mubadala Investment Co., a UAE-based sovereign wealth fund. It is Waymo’s first outside round of fundraising.
Waymo retired its Firefly self-driving car in 2017 and has retrofitted its software and sensors into conventional vehicles such as Chrysler Pacifica minivans.
Volvo is owned by China’s Zhejiang Geely Holding Group Co, which also has an agreement to deliver vehicles to ride hailing company Uber Technologies (UBER) - Get Report. Uber will equip them to operate as self-driving vehicles.
Volvo Cars is continuing to deliver vehicles to Uber. The ride-hailing and food-delivery giant has been cutting costs and reducing staff to offset revenue lost to the coronavirus pandemic.
The company also is reconsidering its hefty investments in segments including freight and automated driving technology.
In 2018, a self-driving Volvo SUV operated by Uber struck and killed a pedestrian in Arizona.