Among the several electric vehicle (EV) start-ups that took the markets by storm last year, Rivian (RIVN 0.89%) was the most hyped EV stock, with its initial public offering (IPO) turning out to be the largest in the U.S. since Meta Platforms' (formerly Facebook) IPO in 2012. Rivian's R1T pickup truck, after all, had already hit the roads even as EV leader Tesla (TSLA -3.28%) failed to start production of its Cybertruck in 2021 as planned.
Rivian, however, has struggled since, while Tesla continues to lead in the red-hot EV space. Yet, with Rivian stock plunging and losing almost twice as much value as Tesla this year, is it time to buy the EV start-up stock? Or are you better off investing in the stalwart to play the EV boom? Let's find out.
A smart start-up path
Howard Smith (Rivian): Rivian and Tesla are two completely different companies right now. Sure, they are both in the EV sector. But Tesla produced almost 1 million vehicles last year, while Rivian has only made about 5,000 since it started production late last year. Of course, investors have already recognized Tesla's success with the company valued at a market cap of nearly $700 billion, even with the stock well off its highs.
But Rivian's $25 billion market cap doesn't necessarily make it cheap, either. The company has had some missteps as it launched its first vehicles and is now facing rising raw material costs as well as supply chain challenges just as it's trying to ramp up its business. After raising capital from early investors that included Amazon and Ford and a successful initial public offering, however, Rivian has what it needs to succeed.
Its relationship with Amazon provided more than just capital. The e-commerce giant has also ordered 100,000 electric delivery vans from Rivian that provide a nice base load for its production line. Rivian estimates about one-third of this year's expected production of 25,000 vehicles will be the commercial vans. But it really is the capital that Rivian has accumulated that potentially makes it a worthy investment.
As of March 31, the company had about $17 billion in cash and equivalents on its balance sheet. It expects that to carry it through 2025 with a second manufacturing facility being built in Georgia and the launch and ramp up of its second generation R2 vehicle platform. That amount of cash on the balance sheet is nearly equal to Tesla, but with only about one-thirtieth the market cap.
RIVN Cash and Equivalents (Quarterly) data by YCharts
Rivian certainly still has much to prove. And the operational risks are much higher as it has yet to successfully mass produce its vehicles. But with enough cash on hand to get there, it might be worth an investment now, as the stock is likely to track any positive milestones higher.
The EV powerhouse
Neha Chamaria (Tesla): Tesla's clout in the U.S. electric-vehicle market is hard to match -- nearly 75% of all EVs sold in the U.S. in the first quarter were Tesla products, according to Kelley Blue Book. Competition, of course, is catching up, but Tesla is already in a place other EV makers could take years to reach -- it's selling almost a million vehicles per year and is doing so profitably. In 2021, Tesla generated an operating margin of 12% and $5 billion in free cash flow.
That doesn't mean Tesla is unbeatable and risk-free. Far from it. Supply chain constraints, by far, are turning out to be Tesla's biggest growth hurdle, with CEO Elon Musk even revealing in a recent interview with Tesla owners how the two factories it opened in the first quarter are burning billions of dollars. Yet, whether it's inflation, interest rates, or supply challenges, these are macro factors that aren't and won't hurt Tesla alone but nearly every EV manufacturer out there.
Tesla has a good problem: that of supply, and not demand. In fact, the waitlist for Tesla vehicles ordered now is likely to extend into one year or more, and that's primarily because of steep raw material and logistics constraints.
Tesla, though, still expects production to rise by 50% in 2022. Right now, with so many EVs from so many different companies hitting the roads, the ability to scale capacity and production can make all the difference. Tesla is going all out to do that, and it's still in the early stages of growth. That makes it a no-brainer EV stock to buy on the dip.
The verdict: Both stocks are alluring, but one is riskier
Tesla stock has turned out to be an incredible investment in recent years, and its growth story looks as strong as ever. Yet, some are wary of investing in Tesla now as they fear they may not see those kind of returns again given that the stock still has a market cap of over $700 billion despite this year's sell-off.
In contrast, investors in Rivian see solid upside in the company and its stock price as the EV maker puts its cash to use to scale up production. Also, Rivian is a new entrant, and growth investors often prefer a piece of action in a young company over an established one. Sure, if Rivian can navigate the near-term challenges, meet its ambitious long-term goals, and corner a sizable chunk of the electric truck market until Tesla's Cybertruck rolls out, the stock could be a huge winner. Just keep in mind that it's a big if for now.
