The electric vehicle (EV) revolution has spurred a major shift in the landscape among automakers. Tesla's (TSLA 5.93%) overwhelming success has prompted the industry's incumbent leaders to redirect their focus toward EVs, and encouraged the launch of numerous upstarts like Rivian Automotive (RIVN 9.22%).
A future in which EVs dominate the road no longer feels so distant. Some estimates suggest they could make up 25% of new vehicle sales by the year 2035, and 60% by 2050. But if government policies discourage the manufacture of internal combustion vehicles and promote greener alternatives, the percentages could rise even more quickly.
The stock prices of both Tesla and Rivian have tumbled from their all-time highs amid the broader tech stock sell-off, so now might be the time to open long-term positions in these automakers, especially given the lofty price targets that Wall Street analysts are placing on these two stocks.
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1. Tesla: Implied upside of 84%
Tesla is the leader in the EV industry right now, despite its history as one of the most doubted and criticized companies of the last decade. Naysayers gave Tesla slim odds of succeeding in its transformation from innovative designer of luxury EVs to mass-market car producer because there was no genuinely successful precedent for the type of vehicles it was proposing.
Not only has the company proven its doubters wrong, it has received high praise from the CEO of a key competitor Volkswagen Group, who said recently that Tesla sets the benchmarks for both technology and productivity when it comes to EVs.
It's one thing to bring an innovative product to market, but doing so profitably is the real challenge. Tesla generated full-year GAAP earnings per share for the first time in 2020, and in 2021, that metric grew by 666% as the company delivered 936,222 cars and brought in revenue of $53.8 billion.
Now, Tesla is set for another year of strong growth. It's on the verge of opening two brand-new gigafactories -- one in Texas, and the other just outside of Berlin. Its ultra-efficient factories epitomize modern manufacturing, and are key factors that allow Tesla to maintain gross profit margins that are so much higher than those of its competitors.
Wall Street firm New Street Research is extremely bullish on Tesla. The $1,580 price target it has on the stock represents an 84% upside from where it trades today. But over the longer term, that might prove to be a conservative forecast as the company grows its product line. Tesla notably has additional business segments like residential solar and energy storage, giving it potential growth drivers that its EV competitors lack.
Image source: Getty Images.
2. Rivian: Implied upside of 156%
Rivian went public in November, and it's now down by 34% from where it closed its first trading day, despite an enthusiastic rally during its initial month on the market. It has drawn support from the likes of e-commerce giant Amazon, which has ordered 100,000 delivery vans from the company and has been a stakeholder in Rivian since 2019.
Amazon views Rivian as an important part of its plan to convert its entire delivery fleet to a renewable energy model by 2030. While Tesla's vehicle lineup is geared toward sedans and family vehicles, Rivian's focus is on adventure vehicles and fleet vehicles, with its flagship model being the R1T utility truck.
Still, the younger EV maker is a long way behind many of its competitors. Though it had approximately 71,000 pre-orders as of mid-December, it produced just 1,015 vehicles in 2021. It has a planned manufacturing capacity of 600,000 vehicles annually across two facilities in the U.S., one in Illinois that launched in 2021 and another in Georgia that is slated to open in 2024. It will therefore be, at best, some time before its sales can rival those of Tesla, assuming its vehicles are well-received by consumers.
Rivian reported just $1 million in revenue for 2021's third quarter, but investors and analysts are betting that with the $13.7 billion in gross proceeds it brought in via its initial public offering, it will be able to ramp up production and execute on its ambitious strategy to compete with the established EV makers. It does carry risk, but Bank of America Securities has a buy rating on Rivian stock with a price target of $170 -- 156% higher than its current price.
Electric vehicles are the future, and Rivian is going after potentially lucrative market segments that aren't yet being addressed at scale by other producers, so it could be a great long-term bet for your portfolio.
