In the battle of electric-vehicle (EV) start-ups, two popular stocks have suffered similar fates this year: Rivian Automotive (RIVN 2.84%) and Nio (NIO 0.25%). Nio has been around for several years and delivered nearly 91,000 EVs in 2021, while Rivian went public only last year and managed to deliver just about 900 vehicles in the year.
Yet with a bear market and challenges aplenty hitting both Rivian and Nio in recent months, their stocks have plunged almost 70% this year. Which EV stock makes for a better bear market buy now? Let's find out.
Focus on production and demand
Howard Smith (Rivian): Rivian shares are down about 70% year to date. That doesn't necessarily make them cheap by most metrics, though.
The company's $28.5 billion market cap is still about 14.5 times the revenue it's expected to bring in this year. For perspective, that compares to a trailing-12-month price-to-sales (P/S) ratio of 8 for Tesla. But production and sales should continue to ramp up through 2023, bringing that metric lower against Rivian's current share price.
In its recently released third-quarter report, Rivian maintained its estimate for 2022 production volumes, implying 45% sequential growth in the fourth quarter. That growth comes against a similarly strong expansion in demand, as shown in the chart below.
Data source: Rivian Automotive. Chart by author.
The preorder backlog shown above is for its R1 platform consumer pickup truck and SUV offerings. They are net any cancellations and deliveries and don't include the 100,000 electric delivery-van order Rivian has from Amazon.
The question for investors remains the company's valuation, as well as its capital position. Rivian continues to lose a vast amount of money. It reported a net loss of more than $1.7 billion in the third quarter but ended the period with $13.8 billion in cash and equivalents. That's down from $15.4 billion in the prior quarter, however.
While there remain valuation concerns and execution risks, the recently reported quarter should have given investors a boost of confidence in the potential for Rivian's business. With the stock down 70% in 2022, it may be time to make Rivian a bear market buy.
Making waves in a massive EV market
Neha Chamaria (Nio): Like Rivian, Nio is losing money. It suffered a net loss of $582 million in the third quarter, up 45% year over year. Unlike Rivian, though, Nio is producing and delivering cars rapidly and has already gained a solid foothold in its domestic market, China, which also happens to be the world's largest EV market.
The problem with Nio right now is, ironically, China. The nation's zero-COVID policy continues to hurt manufacturers, and Nio had to suspend operations for some weeks at least twice in 2022 to comply with the lockdowns. That, of course, hurt production and sales volumes and was a major fear that drove Nio's stock price down.
Nio, however, is confident it can deliver a record number of cars in the fourth quarter on higher production of newly launched EVs, especially its premium midsize sedan ET5. Nio delivered its first ET5 in September and expects the sedan to outsell the popular BMW Series 3 in China within a year. If that happens, it could boost Nio's brand image and market share in China's premium electric-car market.
Nio also has big plans for 2023, including the launch of five new products in the first half of the year and an eye on a gross margin of 20% or more if battery costs decline. Given that Nio will already surpass 0.1 million deliveries in 2022, I see strong growth potential in this company. With Nio also already generating billions of dollars in revenue -- it generated revenue worth around $1.8 billion in the third quarter alone -- I think the stock is a solid buy at its current market cap of $18 billion.
The better EV stock to buy
Given Nio's size and scale of operations, growth plans, and financial standing, it looks well-poised to deliver on growth in the near term, and that should reflect in its stock price. That's not to say you should write off Rivian, though.
Nio carries the "China" risk that Rivian doesn't. Given its strong cash balance and the backing of Amazon and Ford, all Rivian might need to regain investors' trust is to produce 25,000 EVs this year.
Rivian still looks like a more speculative bet right now, although 2023 could be big year for both EV stocks.
