A lot can change in a decade. Tesla began selling its Model S sedan in 2012 and fought skepticism about its vision for the electric vehicle (EV) market for years. Today, the company is worth nearly $1 trillion, and electric vehicles are making their strongest arguments ever that they're the future of the automotive industry.
The global market for battery electric vehicles is now estimated to be $64 billion, but the analysts at Statista predict it could grow to $212 billion by the decade's end. Up and coming EV makers like NIO (NIO -0.48%), Rivian Automotive (RIVN -3.62%), and Lucid Group (LCID -3.92%) have gone public recently, and all three show long-term promise. But which is most likely to be the biggest short-term winner for investors?
The case for NIO
NIO is a China-based manufacturer of premium electric vehicles. It's currently selling two SUV models -- the ES8 and ES6 -- and a sedan, the EC6. As of the end of October, it had delivered a total of 145,703 units. This gives it the most extensive production track record among these three companies; Rivan and Lucid are just getting started in production.
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Nio is successfully growing its manufacturing output despite global supply chain challenges across the industry. Its 24,439 vehicle deliveries in the third quarter of 2021 were an all-time high and a 100% year-over-year increase. It also launched its battery-as-a-service offering in 2020 that lets customers buy an EV for a lower up-front price, and subscribe to receive upgradeable and rapidly swappable batteries.
NIO is arguably the most proven competitor in this group because of its existing deliveries and vehicle lineup. It operates in China, which has been the largest market for EVs, with a 12% share in the first half of 2021. However, NIO faces greater political risks than the other two. The Chinese government has repeatedly shown its willingness to intervene with its domestic tech sector. It also rescued NIO from bankruptcy in 2020 during the early part of the COVID-19 crisis, when the city of Hefei invested $1.4 billion into the company. Investors should remember that NIO nearly closed its doors, and its ties to the Chinese state make it a potentially riskier stock to hold.
The case for Rivian Automotive
When Rivian went public recently, it delivered one of the largest IPOs in some time, exceeding a $150 billion market cap in its early days of trading. Both Amazon and Ford Motor Company hold minority stakes in it.
The company ended 2021 with just over 1,000 total vehicles produced. It's attacking a less-traveled road in the EV market, starting with pick-up trucks, SUVs, and commercial delivery vans, where there's currently less competition than the car segment. It says it has roughly 71,000 preorders for its R1T truck model, and Amazon has ordered 100,000 electric delivery vans from Rivian (to be delivered between 2022 and 2030) to support its effort to transition its last-mile delivery infrastructure to electric.
The most significant risks facing shareholders could be the company's valuation and lack of track record. It sports a massive $58 billion market cap against analysts' consensus revenue estimates for 2022 of $3.5 billion. That gives it a forward price-to-sales ratio of just over 16, which is four times NIO's current ratio. However, Rivian has barely started making a physical product. Tesla underwent years of growing pains building its production to what it is today, and it's possible that Rivian goes through something similar. There's a lot to like about Rivian, but the market has already priced a lot of anticipated success into the stock.
The case for Lucid Group
Lucid Group went public via a merger with a special purpose acquisition company (SPAC) over the summer. Of these three, it might be the most similar to Tesla. Before he came to Lucid, CEO Peter Rawlinson was the lead engineer for the Model S. At Lucid, he has followed a similar business strategy to the one Tesla took during its early years, breaking into the market with a premium sedan, the Lucid Air.
Production is just beginning to get rolling for the model, but the Lucid Air is already getting a highly positive reception. The EPA rated it with a 520-mile range on a single charge, the longest range ever for an electric vehicle. It's also Motor Trend's Car of The Year for 2022. These types of accolades are a testament to the company's engineering abilities, and could certainly help drive sales.
But the stock faces a similar challenge to Rivian's in that it's trading at a massive premium considering what little it has so far accomplished. Based on its $62 billion market cap and analysts' consensus revenue estimates of $2.0 billion for 2022, it carries a forward-price-to-sales ratio of 31. That makes Lucid the most expensive stock of this trio, and while it may also have the most promising technology at this point, investors could have a long wait before the business grows into that valuation. Lucid started its first vehicle delivered in late October, so investors will want to keep an eye on the company's progress as it grows production capacity.
Elon Musk once said that "...the true difficulty, and where the greatest potential is – is building the machine that makes the machine." Lucid and Rivian are both in their infancy, and their investment returns could come down to justifying their valuations by successfully building the facilities and systems that make their vehicles.
And the winner is...
If I were picking among these stocks for a 10-year investment, I would lean toward Rivian or Lucid because of the potential political risks to Chinese companies like NIO. But both of these stocks are so expensively valued that they could underperform the market in 2022 because investors now are broadly selling off these exact types of pricey, speculative stocks.
Therefore, of the three, I think NIO is poised to perform the best in 2022. Its forward P/S ratio is just under 4, which is still a premium to legacy automotive stocks, but seems the most reasonable of the group. It also has a more established track record of production, making more than 24K vehicles in its most recent quarter.
Are these up-and-coming electric vehicle companies as proven as legacy automakers? No, but the EV industry's still developing as a whole, and companies like NIO are dedicated to it, while legacy automakers are still trying to balance between combustion engines and EV technology. NIO seems to "check its boxes" better than the alternatives right now, which makes it the winner here.
