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Why Tesla, Rivian, and Lucid Stocks Are All Over the Map Today

By Rich Smith – Jan 7, 2022 at 2:44PM

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Investors may be having trouble making heads or tails of Morgan Stanley's electric car report.

What happened

Electric car stocks have been pretty volatile so far this year -- but today may take the cake.

From a 6.5% drop earlier today, shares of Rivian (RIVN 3.16%) have recovered all their losses and then some. As of 1:30 p.m. ET, they're actually up about 1.3% from yesterday's close. Tesla (TSLA 0.56%) on the other hand might be the stock to beat in electric cars, but it's having a hard time keeping up with Rivian today -- down 3.3% as Rivian rises. And last but not least is Lucid Group (LCID 3.28%), tearing up the track with a 9.5% gain.

Red arrow going down crosses a green arrow going up.

Image source: Getty Images.

So what

What started all this commotion Friday? It all began with an electric cars report from Morgan Stanley that came out yesterday afternoon.  

In this report, which was covered by, Morgan Stanley endorsed Rivian as the stock it wants to own "right here. Right now" -- this despite the fact that Chief Financial Officer Claire McDonough just admitted that Rivian has no intention of earning a profit right now, but rather wants "to prioritize our ability to rapidly bring new vehicles to market versus having that path to prioritize profitability," according to The Wall Street Journal. In furtherance of that goal, McDonough promised to spend $5 billion building a second factory, in Georgia, which could produce as many as 400,000 electric trucks a year once it begins operations in 2024.   

Laying out $5 billion on a new factory is going to push profitability some ways down the road for Rivian, but Morgan Stanley doesn't seem to mind that. As the analyst sees it: "the risks to supply to far outweigh the risks to demand. We are confident Rivian will sell every vehicle they can make... if they can make them." And if Rivian wants to catch Tesla, argues the analyst, it's necessary to spend whatever cash is needed "to scale EV manufacturing."  

Now what

This explains why Morgan Stanley says it is "excited" about Rivian stock even though, according to analyst estimates collected by S&P Global Market Intelligence, basically no one on Wall Street thinks Rivian will earn even so much as a pro forma profit before 2026, and no profits according to generally accepted accounting principles (GAAP) before 2027.

But what does Morgan Stanley's note imply for Tesla (a loser today) and Lucid (the day's big winner)?

In the case of Tesla, if Rivian succeeds in its goal of building 400,000 electric trucks a year in Georgia, and another 150,000 at its existing plant in Illinois, then Rivian is an object that may be closer than it appears in Tesla's rearview mirror. Although Morgan Stanley warns that Rivian faces an "extremely difficult path to ramping EV manufacturing," the analyst says Rivian has "the product, the management, the capability, capitalization and strategic support" to catch up to Tesla -- so much so that MS considers Rivian its No. 2 pick among automotive stocks this year. (No. 1, by the way, isn't even Tesla -- it's Ferrari.)

Finally, what about Lucid?

Lucid stock was kind of left by the wayside in the analyst's report. And yet, investors today may be figuring that if Rivian is worth betting on despite the fact that it won't be profitable before 2027, then Lucid must look pretty attractive as well. After all, according to automotive analysts, Lucid is scheduled to turn pro forma profitable at least a year before Rivian does, in 2025 rather than 2026.

If the buying opportunity on Rivian is as good as Morgan Stanley thinks, then fast-growing Lucid could be an even better bet.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Tesla. The Motley Fool has a disclosure policy.

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