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Better Buy: Tesla or a 50/50 Split of Lucid and Rivian?

By Daniel Foelber and Howard Smith – Nov 22, 2021 at 7:34AM

Key Points

  • Tesla, Rivian, and Lucid are the three most valuable U.S. automakers.
  • Tesla’s business and growth have never been better.
  • Lucid's initial product has won high praise, and Rivian has some unique advantages. 

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These top three electric-vehicle stocks are bursting with potential.

Veteran electric-car stock investors have spent years with limited options. Sure, there have been raw-material plays like lithium or copper companies, but in terms of automakers, viable investments have been few and far between -- that is until companies like Lucid Group (LCID 2.93%), Rivian Automotive (RIVN 1.61%), and Nio hit the scene. Plus, there are several legacy automakers like Ford that are serious about diversifying toward electric vehicles (EVs). This sudden surge of options can be overwhelming.

One choice could be investing in the kingpin itself, Tesla (TSLA 2.52%), or exposing yourself to high-risk, high-reward growth with a 50/50 split of both Lucid and Rivian. Here's the case for each.

A white Tesla Model S cruises down an open highway.

Image source: Tesla.

Tesla could retain pole position for decades to come

Daniel Foelber (Tesla): Tesla has found itself on the chopping block due to fears that CEO Elon Musk's optimism is wavering. Musk has stated his intention to sell some of his Tesla stock, which, to be fair, is usually a negative sign.

However, in this case, Musk's sale is more of a technicality. His stock-based compensation should result in him owning more Tesla shares, not less over time. But because stock options are taxed as ordinary income, he'll face a big upcoming tax bill. The selling of the shares will give him the cash needed to pay it.

Now that we've cleared the air of that overblown story, let's focus on the company itself. Tesla is undoubtedly in the best shape of its life, and the stock price has reflected that. Long gone are the days of fluctuations between profitable and unprofitable quarters -- not to mention production nightmares. Tesla is growing production, expanding manufacturing, notching quarter after quarter of growing profit -- all while sustaining an incredibly high operating margin.

The long-term investment thesis for Tesla is beautifully simple. As the market leader with years of experience over its competitors, Tesla stands to benefit the most from rising global EV adoption. It has also successfully developed and scaled production of lower-priced models like the Model 3 and Model Y, which have a higher total addressable market than Lucid's existing trims of the Air sedan and the Rivian R1T and R1S.

Another long-term factor for Tesla is the growth in its self-driving technology. A lot of investors are optimistic that Tesla will be a leader in this field. While there's an excellent chance that could happen, one of the criticisms against the EV maker is that its self-driving technology has been pretty disappointing. After years of hype, it just isn't where a lot of people thought it would be by now.

However, neither are competitors' solutions like Lucid's DreamDrive function. This is all to say that self-driving has a lot of potential, but even the EV market leader (Tesla) is a long way from a fully autonomous solution. Regardless, Tesla is still one of the best all-around options in the EV space right now. 

Invest for the future

Howard Smith (Rivian/Lucid): Tesla has seemingly been a once-in-a-lifetime investment. And now that some high-profile competitors are coming to market, investors understandably want to find the next Tesla. But looking at how Tesla shares have previously performed doesn't help one decide what will happen moving forward.

Tesla, of course, has a lot going for it when compared to current and future competition. Its vehicles are in high demand, and it's proven it can manufacture at scale. But that's already built into the stock price, which shareholders believe can keep moving higher on more than just EV sales

There are traditional automakers trying to break into the EV market, along with start-ups with several advantages of their own. Lucid CEO and Chief Technology Officer (CTO) Peter Rawlinson has long said the EV race is about technology, not cars. That's telling, especially since he previously worked for Tesla and was the lead engineer in developing the Model S sedan.

The first car launched by Lucid has been awarded Motor Trend's prestigious 2022 Car of the Year designation. In its release, the automotive publication called the Lucid Air, "a high-performing, long-range, game-changing electric sedan." That's high praise, considering how long Tesla's Model S has been on the market.

Rivian hasn't delivered its electric pickup truck or SUV to consumers yet, but some of its first commercial-delivery vans have been on the road delivering packages for Amazon. And that's one of the unique advantages that makes Rivian an enticing investment. Having Amazon as a large investor gives Rivian a built-in customer base, at least for its fleet offerings. The retailer has already placed a preliminary order for 100,000 Rivian vans. 

It's not likely that Lucid or Rivian will be the next Tesla as far as stock returns go. But that doesn't mean they both can't be wildly successful. If the investment decision is whether to buy into Tesla now or spread your bets between two well-capitalized start-ups with advantages of their own, a split investment between Rivian and Lucid may have more potential to grow from this point. 

Three high-growth EV stocks to choose from

Tesla, Lucid, and Rivian all have a ton of growth potential. But by traditional metrics, all three stocks are astronomically expensive.

Tesla has a price-to-sales (P/S) ratio of 26.5 and a price-to-earnings (P/E) ratio of 354.8. Lucid and Rivian barely have any sales and are years away from profit. Given this backdrop, it's important for growth investors to understand that all three stocks are likely to be quite volatile in the short term, even if the long-term prospects shine bright.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Howard Smith owns shares of Amazon, Lucid Group, Inc., and NIO Inc. The Motley Fool owns shares of and recommends Amazon, NIO Inc., and Tesla. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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