Electric-vehicle (EV) newcomers Lucid Group (LCID -0.61%) and Rivian Automotive (RIVN -2.28%) captured headlines in 2021 after both companies went public, began delivering vehicles, and set bold plans for 2022.
Less than two weeks into the new year, Lucid's shares have already gained around 20%, while Rivian stock has fallen 20%. Is it better to buy Lucid after its recent run-up or Rivian on sale?
Look behind the curtain
Daniel Foelber (Lucid Group): Lucid hasn't released any major announcements this year. However, there has been lots of news in the EV industry over the last month, including Tesla's record production and delivery numbers, Ford's accelerated ramp-up of its EV production, and Toyota's major battery-investment announcement.
These are all good signs that both newer companies and legacy automakers are recognizing strong consumer demand and market potential for electric cars at multiple price points.
On the surface, Lucid and Rivian have a lot in common: bold plans to disrupt the auto industry, impressive technology, competent management, and a lot of cash. But dig deeper, and you can start to see divergent growth trajectories.
It would seem logical both Lucid and Rivian would be getting a jolt from the recent positive news. Lucid has, but Rivian is already showing cracks in its ability to make due on its promises. While Lucid continues to set bold goals and hit them, Rivian's first announcement as a public company was rather lackluster, as it missed on its quarterly delivery goal. What's more, Rivian's chief operating officer left in December, and the company reported full-year 2021 production of 1,015 vehicles, versus an expected 1,200.
Lucid and Rivian's investment theses are predicated on building a brand and hitting targets. Lucid hasn't missed yet, while Rivian has faltered.
Short-term gains aren't everything, but investors don't like stocks that have a habit of falling after a quarterly earnings call. The day after their first earnings calls as public companies, Lucid rose 24% and Rivian fell 10%.
Of course, it's just one report. But no one wants to see another situation like what FedEx stock did a few years back. Between its fiscal year 2018 to the second quarter of its fiscal year 2020, FedEx stock fell the day after it reported earnings -- every quarter for eight-straight quarters.
Stocks tend to tumble after earnings when actual results fall short of expectations. Companies that have a habit of underpromising and overdelivering, hitting their long-term goals, and basically proving to their investors that the stock is worth buying more of or holding tend to get rewarded.
So far, Lucid stands out as a company that fits that mold better than Rivian. The former is still a better buy than than the latter, even though Rivian is on sale.
Rivian is aiming at a different market
Howard Smith (Rivian): Anyone thinking of buying shares in Rivian has to be going in with the right mindset. This is a speculative stock and a speculative company.
Even after shares have fallen about 20% to start 2022, they remain extremely expensive relative to the company's business. The investor optimism that keeps it at such a high valuation is still mostly based on potential and hope, with the company recently announcing it has barely produced 1,000 vehicles at this point. And as Daniel mentioned, the company has already made a high-level management change.
But like Lucid, Rivian has several things going for it. Its relationship with Amazon is a huge positive. The e-commerce giant -- and early Rivian investor -- has plans to purchase up to 100,000 of its electric-delivery trucks. Part of the reason Rivian's stock has dropped recently was the news that Amazon would also be working with Fiat Chrysler-parent Stellantis to buy its electric commercial-truck offerings. But Amazon has emphasized that this hasn't changed its plans or relationship with Rivian at all. The stock dropped anyway.
Rivian is aiming for a different market than Lucid. The latter's sedans have prices ranging from over $77,000 to almost $170,000. In addition to the commercial-van segment, Rivian will use its R1 platform for pickup truck and SUV models. Its R1T pickup, meant for off-road and adventure use, starts at $67,500 and already has more than 71,000 reservations. It's also been named MotorTrend's 2022 Truck of the Year.
The company isn't aiming for the high-end luxury market. And its mix of trucks, SUVs, and commercial-fleet models give it market diversification. While it's still very early, and Rivian hasn't yet proven it can successfully manufacture at scale, the company is set up to have plenty of potential success in the EV space. The recent 20% drop gives investors willing to take on the risks a good opportunity.
Choppy waters ahead
Lucid and Rivian will likely remain incredibly volatile stocks as long as their investment theses are built around intangibles instead of real financial performance. Many investors may be best served simply watching both companies to see how they progress on their 2022 goals -- knowing full well that delays or several factors outside of each company's control could derail plans. Risk-tolerant investors could consider picking up shares of their favorite EV stocks and building a basket for the long term.