As the largest initial public offering (IPO) of 2021, Rivian (RIVN 6.10%) arrived on the electric vehicle (EV) scene with a bang. The company's luxury vehicles for outdoor enthusiasts filled a void lacking in the burgeoning EV market. With record-level hype, Rivian raised nearly $12 billion by going public, making it the largest U.S. company IPO since Meta in 2012.
But since its debut on the Nasdaq, business has been tough for Rivian. Based on recent earnings reports, the company has yet to turn a profit and lost an average of $32,000 per vehicle sold, resulting in gross profit margins of -35%. Without generating income, Rivian operates solely off the funds it raised in 2021 and has seen its cash position decline by more than 50% in just two years.
While production and revenue are trending in the right direction, Rivian remains an increasingly risky bet for investors looking for EV market exposure. This isn't to say Rivian won't survive this tumultuous period, but rather than putting your portfolio at risk, there are two better options investors should focus on.
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The undisputed champ
With a current valuation of around $745 billion, Tesla (TSLA -1.11%) has quickly become the most valuable automaker in the world and synonymous with the EV movement. There are likely multiple reasons explaining Tesla's ascension to the top, but the most evident is its perfection of mass-producing high-performance vehicles. On pace to deliver nearly 1.8 million cars this year, many other automakers are trying to play catch-up and replicate Tesla's model of success. Not to mention, it manufactures vehicles at some of the lowest costs imaginable.
Furthermore, Tesla's industry dominance looks to be going nowhere anytime soon. Production and deliveries continue to trend upward, as well as revenue. While gross profit margins took a hit recently due to price cuts across its most popular models, they remain at a healthy 18% and near the top of the industry. Even with tighter margins, Tesla keeps growing its immense cash position, totaling more than $26 billion today.
Such large reserves will allow Tesla to widen its competitive advantage by investing in cutting-edge technology such as artificial intelligence, autonomous driving, and its humanoid robot, Optimus. As these technologies continue to be refined, specifically autonomous driving, CEO Elon Musk thinks they could propel Tesla to a total valuation of more than $10 trillion.
The up-and-comer
Less known than Tesla and some other high-profile EV manufacturers, one Chinese automaker is making a name for itself. Named BYD (BYDDY 4.08%), short for Build Your Dreams, the company was originally founded as a battery maker in the 1990s but is now the best-selling automaker in China.
Nearly eclipsing Tesla's production, BYD manufactured more than 1 million EVs in the first three quarters of the year, just 23% less than Tesla. Amidst the surge, BYD's profits YTD grew by nearly 142% compared to last year to more than $3 billion today. Most surprisingly, BYD's gross profit margin surpassed Tesla's, growing to 22%.
It has been a historic rise for BYD, and now the company has its sights set on tapping into markets beyond China. With an unmatched, vertically integrated supply chain that rivals Tesla, BYD can sell vehicles at price points lower than any other automaker. BYD's most affordable model is priced at just $11,000, making it well-suited for success in emerging markets like Latin America and Southeast Asia, where the company is just starting to establish a presence.
Time to measure risk
Compared to Rivian, BYD and Tesla are making profitable EV production look nearly effortless. While it might be unfair to compare a company that has only been producing vehicles for five years to companies that have been doing it for more than two decades, the experience of Tesla and BYD is why they are less risky companies to own.
Starting any company in any industry poses difficulties, but automakers face even more significant challenges due to their intricate supply chains and high costs. For this reason alone, investors are better off focusing on seasoned veterans like BYD and Tesla. The jury is still out on Rivian, but there are better options in the market today.
