Tesla (TSLA 1.70%) and Rivian Automotive (RIVN -3.34%) are two completely different investments right now. But there is one commonality between the two EV makers: The second quarter marks somewhat of a pivot point for their businesses.
Tesla just announced that second-quarter deliveries dropped sequentially for the first time. That has investors concerned about how net income and cash flow will be affected when Tesla releases its financial report on July 20. The news comes just as Tesla is ramping up production at two new plants. Rivian is also working to ramp up its initial production and has big plans for its future. Both stocks have dropped about 40% over the last three months, making this a good time for investors to see if one, or both, fits into their portfolios.
Disappointing or promising?
Tesla reported it delivered 254,695 vehicles in a second-quarter marred by pandemic-induced production delays at its Shanghai facility. Analysts following the company had already reduced projections from about 350,000 quarterly deliveries, but Tesla still came up a bit short of the more recent expectations.
In addition to shorter-term concerns with second-quarter results, investors have had to project whether there is more systemic distress with Tesla's business. The company recently closed a California office, cutting about 200 positions where it was working on its Autopilot driver-assistance technology.
Additionally, CEO Elon Musk recently said the two new plants in Texas and Germany were burning through billions as they are struggling to ramp up production amid supply chain disruptions. Musk has also expressed concerns about a recessionary economy and announced 10% of salaried employee jobs would be cut.
But all that potentially worrisome news comes against the backdrop of an overall strong and growing business. Quarterly net income has been on a sharp upward trajectory for the past year.
Data source: Tesla financial reports. Chart by author.
While the most recent quarterly report is expected to show a sharp sequential drop along with delivery data, it could be a timely opportunity for investors if it is simply a blip. Even with the most recent quarterly decline, analysts still believe the company remains on track to achieve close to its planned 50% production increase in 2022 versus 2021.
Different perspectives
Rivian doesn't have nearly the same amount of data for investors to analyze. It has only made about 5,000 vehicles since it started production late last year and plans to produce just 25,000 total in 2022. In the meantime, Tesla is still on track to deliver about 1.4 million this year if recent projections remain unchanged.
That makes Rivian a different type of investment. For perspective, if Rivian hits its production goal for 2022, it would approximately match Tesla's vehicle production in 2013. At the end of 2013, Tesla was valued with a market cap of $18.5 billion. Rivian was recently valued at about $23 billion.
Rivian also has about $17 billion in cash, with plans in place to construct a second manufacturing facility and launch a second vehicle platform over the next several years. Compared to Tesla's early years, Rivian could have a place in one's portfolio today. However, it should strictly be considered a speculative investment that could, in fact, be written down to zero.
Tesla's recent valuation does remain a concern. It needs to accomplish its goal of 50% annual growth for several years to be considered more reasonably priced by traditional metrics such as price-to-earnings (P/E) ratio.
Tesla shares could certainly fall further in the near term. Profitability could take a hit as the Shanghai plant is believed to achieve higher profit margins than its California counterpart. And the new facilities ramping up will also impact cash flow as they take further investment to grow production.
But price hikes for its vehicles will begin showing up in its financial reporting once its backlog catches up to those orders. Investors with a longer-term time horizon could start a position in Tesla and add to the investment if the stock sinks further. That's not speculation but rather a plan to invest in a profitable company with a bright future.
