Rivian Just Earned Another $1 Billion Investment From Volkswagen. Here's Why That's An Important Milestone for the Stock.

Rivian (NASDAQ: RIVN) is attempting to use new technology to break into the highly competitive auto industry. In that regard, it is following Tesla's (NASDAQ: TSLA) path. However, Rivian isn't doing the same things as Tesla, and a recent $1 billion cash inflow from Volkswagen highlights both the similarities and the differences in Rivian's approach.

Rivian is spending huge amounts of money

Building a capital-intensive manufacturing business from the ground up is difficult and expensive. Rivian has spent billions on the effort already and is likely to spend billions more. That makes access to capital very important. Rivian has a deal with Volkswagen that calls for the giant European automaker to invest as much as $5.8 billion in the upstart's business over time.

Image source: Rivian.

The most recent installment was a $1 billion investment related to a key development milestone. Essentially, Volkswagen successfully tested Rivian technology in its own vehicles. The cash infusion will help Rivian with its big near-term project: launching a more affordable version of its own truck.

In this, Rivian is following Tesla's lead. First, Tesla launched high-end electric vehicles, and then, after getting its manufacturing processes down, it brought out a mass market vehicle. An extra $1 billion will help Rivian continue down this path.

Rivian is different from Tesla

From Rivian's perspective, the cash infusion from Volkswagen is important for its internal vehicle development. However, unlike Tesla, Rivian has a broader view of its technology. As noted, the cash from Volkswagen was tied to that carmaker's use of Rivian technology in Volkswagen vehicles. Rivian is hoping to be both a vehicle manufacturer and an industry supplier.

So the cash Rivian is receiving from Volkswagen is important, but equally important is the successful execution of Rivian's supplier strategy. This two-pronged approach differentiates Rivian from Tesla and increases the possibility of long-term success. Indeed, when Tesla started building electric cars, there was basically no competition. Today, Rivian has to compete with all of the major auto companies and other EV start-ups. Becoming a supplier to the competition broadens the company's sales opportunity and leverages its technology investments.

One milestone, two wins

When you step back and look at the big picture, the latest $1 billion investment from Volkswagen is huge. It provides Rivian with the cash it needs to continue building out its own EV business. And, equally important, it highlights the progress the company is making toward becoming an industry supplier.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.