Over the last few years, several new companies have entered the electric vehicle (EV) market to capture growing demand. What was once a small industry with Tesla (TSLA -1.72%) as the premier player is now brimming with companies trying to weaken its decade-plus dominance.
One of those new companies is Rivian (RIVN -1.11%). With its lineup of off-road-capable EVs, the company has made a name for itself as it caters to the adventure-seeking consumer looking to explore the outdoors. The hype surrounding Rivian led to its grabbing the most valuable initial public offering (IPO) of 2021 at nearly $12 billion, enough to be the second largest in the last ten years, with only Uber Technologies outdoing it.
For investors looking to capitalize on the EV market's lucrative potential, the question arises: Which company is a better buy? The up-and-coming new kid on the block, Rivian, or the seasoned veteran, Tesla?
Image source: Getty Images.
A brief overview
At first glance, the sheer number of new start-ups and legacy automakers entering the EV market would make it plausible to assume that Tesla's dominance has weakened over the years. Yet, that just isn't the case.
Capturing this phenomenon is a recent statistic. In the first six months of U.S. EV sales in 2023, Tesla outsold its next 19 competitors combined. With 325,291 vehicles sold, Tesla outperformed its closest rival, Chevrolet, which sold only 31,000. Rivian sold just 17,969 vehicles.
It's worth noting that Tesla has been producing vehicles for more than 20 years, while Rivian has only been in the business for half that time. Despite this, Rivian has made significant progress in scaling production and boosting sales.
In the third quarter of 2022, Rivian manufactured 7,363 vehicles and delivered slightly over 6,500. Since then, those numbers have risen to around 16,300 vehicles produced and 15,564 delivered in Q3 2023, both showing an increase of over 120%.
However, compared to Tesla's 435,059 vehicles delivered and 430,488 produced in the most recent quarter, Rivian still has a long way to go before it can even be considered a true challenger.
What the finances say
While production and deliveries are valuable metrics to gauge a company's manufacturing operations and end-to-end supply chain management, the great equalizer lies in the finances.
Likely a reflection of the growing demand for EVs, both companies recently notched new all-time highs in revenue. Rivian broke through the $1 billion mark for the first time in its history. It is an admirable achievement, yet it comes nowhere close to Tesla, which raked in more than $21 billion from just its EVs in Q2 2023. Adding to the disparity between the two, Tesla's perfection of the manufacturing process and ability to mitigate costs has helped it obtain some of the highest gross-profit margins in the industry. Even though Tesla's historic price cuts in the last year have made their presence felt, the company still boasts a healthy margin of 18%.
TSLA Gross Profit Margin (Quarterly) data by YCharts.
Rivian, conversely, has yet to turn a profit. Reporting a loss of nearly $33,000 per vehicle sold, Rivian's profit margin remains in the red at -37%. Again, it is worth noting that the company has been trending closer to profitability, as this number was as low as -193% in 2022.
With a lack of profits, Rivian is operating solely off of the funding it raised from its massive IPO. While a considerable $9.2 billion of cash and equivalents remain, the inability to reach profitability will dry the reserves up and could spell disaster for the company.
Tesla's rare combination
Admittedly, comparing Tesla to Rivian might be a little unfair. It would be similar to comparing an amateur boxer to a heavyweight champion; it's not even a competition. In every measurable aspect, Tesla outdoes Rivian.
The allure of Rivian as an up-and-coming start-up with untapped potential is undoubtedly compelling but holds immense risk. Yet, investors often forget that Tesla still has plenty of room to grow as well.
Thanks to its commitment to investing in research and development, Tesla continuously pushes the advancement and integration of new technology into its business models. The most noteworthy innovation would be applying artificial intelligence to achieve autonomous driving. While Tesla hasn't eradicated drivers just yet, development of its full self-driving software has made considerable progress this year. Once it becomes more capable, CEO Elon Musk plans to create a robotaxi business. Citing "quasi-infinite demand," Musk believes the launch of an autonomous taxi service will be talked about a hundred years from now and will make it a "ten-trillion [dollar] company."
Few other companies offer investors the combination of financial strength, industry dominance, and long-term potential that Tesla does. While Rivian continues to face an uphill battle toward profitability, investors are better off sticking with the seasoned veteran that is Tesla.
