DUBAI (Reuters) - Saudi Arabia's Public Investment Fund (PIF) has agreed to invest more than $1 billion in Lucid Motors, adding to the emerging competition facing U.S. electric vehicle maker Tesla Inc TSLA.O.

FILE PHOTO: Derek Jenkins, VP of Design at Lucid Motors, introduces the alpha prototype of the Lucid Air at the 2017 New York International Auto Show in New York City, U.S. April 13, 2017. REUTERS/Andrew Kelly/File Photo

The funding will enable Silicon Valley-based Lucid to achieve the commercial launch of its Lucid Air electric vehicle in 2020, PIF said in an announcement on Monday. Lucid joins Daimler-owned DAIGn.DE Mercedes, BMW BMWG.DE and Volkswagen's VOWG_p.DE Audi and Porsche divisions in the battle for dominance in the market for premium battery cars.

Tesla shares initially dropped 2.2 percent on Monday’s announcement before recovering to positive territory.

In August, Tesla founder Elon Musk said the Saudi sovereign wealth fund could help him to take his company private.

The Lucid investment, which PIF said is more than $1 billion but did not give an exact figure, is also part of Saudi Arabia’s plan to build an environmentally friendly economy, to diversify the kingdom away from reliance on crude oil.

“They’re not just a financial partner they’re a strategic partner,” Lucid Chief Technology Officer Peter Rawlinson told Reuters.

“It’s all the capital we need for three things: to continue the development of the car, to construct the factory in Arizona, and to initiate the rollout of our global retail strategy and that will commence in the U.S. because that’s our first market,” he said.

The company might plan to sell into China or build SUVs at a later date, Rawlinson said.

He said the company conceived itself as being less of a direct competitor to Tesla than with luxury gasoline car makers such as Audi or BMW.

A PIF representative said that by investing in the electric vehicle market, “PIF is gaining exposure to long-term growth opportunities, supporting innovation and technological development and driving revenue and sectoral diversification for the Kingdom of Saudi Arabia.”

Obtaining cheap capital is a constant challenge for carmakers, which can spend $1 billion or more engineering a single new model.

Based in Newark, California, Lucid Motors was founded in 2007 as Atieva by Bernard Tse, a former Tesla vice president and board member, and Sam Weng, a former executive at Oracle Corp and Redback Networks.

Earlier on Monday, PIF said it had raised an $11 billion international syndicated loan for general corporate purposes.

The fund has already made substantial commitments to other environmentally friendly projects, including renewables and recycling, and to technology companies or investments, including a $45 billion agreement to invest in a technology fund led by Japan’s SoftBank Group Corp 9984.T.