Just about any investor familiar with electric vehicles (EVs) will tell you that Tesla is the leading EV stock. But things get a bit more contested when you begin looking at second place and what might be the next up-and-comer to shake up the automotive industry.
Rivian Automotive (RIVN -2.21%) and Lucid Group (LCID 1.19%) came public at roughly the same time and are taking different approaches to building their place in the EV sector.
The stocks are both down roughly 90% from their respective highs, so which is the better EV stock? A look at the data will reveal one clear winner. Here is what you need to know.
Two companies making different products
Rivian went public and delivered its first vehicle unit in late 2021. The company was established in 2009 and is still run by its founder today.
Rivian sells three models, none of which are sedan models like what Tesla began with. The company has three models today, including a delivery van (the EDV), pickup truck (the R1T), and SUV (the R1S).
Meanwhile, Lucid Group has followed a playbook closer to Tesla's. The company was founded by a former Tesla lead engineer in 2007, who began his company by focusing on the luxury sedan segment, as Elon Musk's company did.
Its flagship product, the Lucid Air, began deliveries in the fall of 2021. The company is focusing on the Air for now, but is also developing its next product, the Lucid Gravity, an SUV.
How are they ramping up production?
Nearly two years since the first vehicles rolled off their assembly lines, each company is working through the growing pains of manufacturing.
The factories that make vehicles are big and expensive to run, and they need to make a lot of units to spread their costs out. Otherwise, the companies could lose a lot of money. Both companies are in the process of increasing production volume in the hope of turning profitable over time.
You could say that the longer it takes to increase production, the more money the business loses. That's why executing on manufacturing is a crucial piece of the puzzle that investors should watch closely.
Rivian set an initial production target of 25,000 units for 2022 and came relatively close to hitting that: The company produced 24,337 units in 2022. So far in 2023, management is shooting for 50,000 vehicles and affirmed that guidance after its first-quarter earnings.
Lucid targeted 12,000 to 14,000 vehicles in 2022 but fell short, hitting just 7,180 after reducing its guidance during the year. It initially set a 2023 target of 10,000 to 14,000 units, but has focused on the low end of that guidance, revising down to 10,000 units after three months.
It's hard to argue against the conclusion that Rivian has had far more success in manufacturing thus far, which could have long-term financial ramifications by reducing its cash burn faster than Lucid.
How well is each company funded?
You can see below that free-cash-flow losses increase with production, which should eventually peak and decline as revenue begins outpacing the costs of running the factories (known as operating leverage).
Until then, it's a game of having enough cash to survive. Right now, Rivian is burning more cash but is producing more vehicles. The company has burned $6.7 billion over the past year and has $11.2 billion on the books. Management recently filed for a $1.3 billion convertible bond offering in March and might need to raise more cash at some point.
RIVN free cash flow, data by YCharts.
Lucid's funding could become an issue much sooner. It burned $3.6 billion over the past four quarters but only has $3 billion left on its balance sheet. Unless cash burn slows, that's not enough to cover the following year's costs of operating the company. Saudi Arabia's Public Investment Fund could backstop Lucid's financing needs since it owns a majority stake in the company. However, that could also come with terms that don't benefit common shareholders and is something to watch closely moving forward. It seems that Rivian's the better-funded company today.
Which stock is the better buy?
Let's be clear; both Rivian and Lucid are trudging through the early years of growth in a competitive and difficult industry to thrive. Both companies are probably years from profitability and have much to prove moving forward. Investors should approach either stock cautiously, planting them firmly in the speculative pile.
With that said, Rivan is doing a far better job growing its manufacturing output and is better funded to work through the tough quarters when cash losses are high. The battle isn't yet won, but there's enough progress here to be optimistic about the future. On the other hand, Lucid is struggling to incrementally grow its factory output, which will keep cash losses high, a luxury its balance sheet doesn't seem able to afford.
RIVN PS ratio (forward), data by YCharts.
Looking at valuation only makes the choice more obvious. Based on the price-to-sales ratio (P/S), Rivian trades at a far lower valuation than Lucid. Market sentiment is unpredictable, so Lucid could be fetching a P/S ratio for any number of reasons, but it doesn't appear fundamentals are one of them. Bottom line -- both stocks are risky today due to the difficulty these underlying companies face, but Rivian is the clear choice if you insist on choosing between them.
