It's no secret that the transition from internal combustion to electric vehicles is underway, and the opportunity for investors to profit off of this revolutionary change is huge.
But should the hype of a highly anticipated IPO make Rivian Automotive (RIVN -2.28%) -- with barely more than 1,000 cars sold -- a better investment than a company like Xpeng Motors (XPEV 0.94%), which is already cranking out tens of thousands of vehicles each quarter for its customers?
On track to become a busted IPO
In early November, Rivian conducted its highly anticipated IPO, priced at $78 per share. Within a week, the stock had more than doubled, hitting a high of $179. But the feel-good news for early investors stopped there.
If shares of Rivian were an actual car, that tenderness you feel on the downhill is the wear and tear on the brakes to keep it from careening out of control, highlighted by an 11% drop on Wednesday. For those who have been waiting on the sidelines, the entry points are getting better by the day as Rivian's share price nears its IPO price, but at what level this stock will become a good deal is still hard to say.
The company has a few things going for it. First, the EV market in North America is projected to grow at a compound annual rate of 27% through 2027 to $194 billion. Second, Rivian has begun delivering vehicles to customers, and as of Dec. 15, its vehicle pre-orders had increased by 28% over their November level to 71,000. And third, it is supported by Amazon, which owns a 20% stake in it and has a contract to purchase 100,000 Rivian delivery vans, deliverable by 2025.
What Rivian has going against it is that it is failing to meet its timelines, goals, and earnings targets. In the third quarter, the company's net loss was $1.2 billion, or $12.21 per share -- on revenue of $1 million. Wall Street analysts were looking for a loss of $5.29 per share on that same revenue number. The company also fell 13% short of its goal of producing 1,200 vehicles by year's end, coming in at 1,038.
To make matters a bit worse for Rivian stockholders, Amazon announced on Wednesday a deal to buy a significant (though as yet unspecified) number of electric delivery vans from Stellantis, the company formed from the merger of Fiat Chrysler Automobiles and Peugeot.
That news drove Rivian stock down as traders worried about the impact that deal could have on the long-term relationship between Amazon and Rivian. As of mid-afternoon Thursday, Rivian's stock was changing hands at around $86 a share -- still above its IPO price, but less than half of its peak.
The move by Amazon could simply be seen as the tech giant spreading out its EV purchases to minimize the risks that could arise from dealing with a single EV maker. Amazon could also have other financial or location-related reasons in mind. Either way, Amazon is looking elsewhere to meet some of its EV needs.
This year, Rivian intends to begin construction on a new $5 billion plant in Georgia that will help it increase production -- eventually, that plant is expected to be able to churn out 400,000 vehicles per year. But it isn't expected to start production until sometime in 2024.
If Rivian can meet that timeline, it will certainly help it to get more vehicles to customers -- including delivery vans to Amazon. But if it falls behind, that could hinder the company's efforts to hit another goal -- producing 1 million vehicles annually by 2030.
Month-over-month sales growth is propelling Xpeng Motors ahead
Unlike Rivian, which is headquartered in the U.S., Xpeng Motors is based in China, the world's most populous nation. But being a tech company in China also means dealing with intensifying oversight by government regulators.
Xpeng, for example, recently got hit with a $15,700 penalty for unauthorized data capture after it was discovered to have used facial recognition systems to analyze the demographics of those who visited its showrooms.
Within those showrooms, Xpeng promotes its P7 and P5 sedans, as well as a long-range SUV. The company delivered more than 25,000 vehicles in the third quarter, and finished Q4 with nearly 42,000 units sold. It continues to set new sales records each month; the 16,000 units sold in December brought its total sales to over 120,000 units.
Sequential growth gave Xpeng year-over-year revenue growth of 187% in Q3. Gross margins increased to 14% from 4.6% in the prior-year period, and also improved sequentially.
The company already sells vehicles in Norway, and plans to expand its European operations into nations including Sweden, Netherlands, and Denmark during 2022. XPeng President Brian Gu has indicated that if demand justifies it, Xpeng would consider locating a manufacturing plant in Europe, which would also likely allow it to generate higher margins on its sales there.
Like Rivian, Xpeng stock climbed rapidly in the period just after its IPO, going from around $20 in August 2020 to over $70 in November 2020, before settling back down to a range generally between $30 and $45. Since Oct. 4, it has been on a gradual climb, from $34 to a peak in the neighborhood of $55, and is now trading around $46.
But if the forecasts of analysts are accurate, this stock has more room to grow. After the company announced its Q3 results, Bank of America analyst Ming Hsun Lee and Citi analyst Jeff Chung reiterated their buy ratings and raised their price targets on the stock to $66 and $92, respectively. The higher of those targets represents a potential 100% gain from the current price.
When the time is right
For investors taking a long-term approach, the EV market provides plenty of opportunities -- and now may be an opportune time to add Xpeng to your portfolio. Meanwhile, Rivian's relationship with Amazon should justify investors keeping it on their radar, too. But considering the recent stock price action, the company's difficulties meeting its production goals, and Amazon's wandering eye, I'd favor Xpeng more.