Rivian Automotive (RIVN 6.10%) and Nio (NIO 8.72%) are among the most closely followed electric vehicle (EV) stocks. While Nio is a key player in the world's largest EV market, China, Rivian stole the spotlight when it beat legacy automakers and became the first company to launch an all-electric pickup truck, the R1T.
The markets, however, haven't been kind to Rivian and Nio. Both EV stocks have fallen by double-digit percentages over the past year as multiple challenges – both external and internal -- hit the EV makers.
However, Rivian and Nio are both showing signs of a turnaround, and it could only be a matter of time before their stock prices recover if the companies can execute their plans. Which among the two beaten-down EV stocks, though, is a better buy now? Here's the bull case each for Rivian and Nio to help you decide.
Rivian is rolling in the right direction
Scott Levine (Rivian): Because it's still unprofitable, it's impossible to value Rivian's stock using traditional metrics. Nonetheless, with shares plunging nearly 40% over the past year, investors have a chance to hitch a ride with Rivian at a fraction of what it cost this time in 2022 -- an especially alluring proposition, considering its recent successes.
In its third-quarter 2023 earnings presentation, Rivian upwardly revised its 2023 vehicle production outlook to 54,000 units. For context, Rivian had started the year expecting to produce 50,000 vehicles, later updating it to 52,000 vehicles during the Q2 2023 presentation. This consistent raising of the production forecast is an encouraging sign, since the quicker it can scale production of its vehicles, the quicker it will achieve profitability.
To this end, it's worth noting that the company also improved its 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast. Whereas it had projected 2023 adjusted EBITDA of negative $4.3 billion during Q1, management recently pared the expected loss down to $4 billion in adjusted EBITDA. According to management, the improved outlook stems from reductions in material costs, in addition to the ramp-up in vehicle production.
Another reassuring sign from the quarter is the green flag for the company's new production facility in Georgia. In a regulatory filing from Nov. 13, Rivian stated that it has entered into a rental agreement with the state of Georgia for the new manufacturing plant to be built in the Peach State. This complements news from the Q3 2023 shareholder letter that Rivian has begun the process of ordering equipment for the new facility.
Successful development (both on schedule and on budget) of the facility in Georgia is a major catalyst for the company's growth. Rivian estimates that the facility -- expected to commence operations in 2026 -- will ultimately have an annual production capacity of 400,000 vehicles.
Nio foresees better days ahead
Neha Chamaria (Nio): 2023 has been a volatile year for Nio, with the Chinese electric vehicle (EV) stock losing nearly a quarter of its value so far as supply chain disruptions and Nio's dwindling deliveries and gross margins spooked investors. In the second quarter, for example, Nio generated a gross margin of only 1%, compared with a 13% margin in the year-ago quarter.
Nio, however, expects things to turn around and foresees a much stronger second half of the year. The company's deliveries have already picked up pace in recent months, thanks to new models and the opening of the Chinese economy. To put some numbers to that, Nio's deliveries surged 75% year over year and more than doubled sequentially in the quarter that ended Sept. 30. Deliveries in October maintained the upward trend, rising 60% year over year.
An even more important number, though, is Nio's gross margins, which slumped in recent quarters on fewer deliveries and a higher contribution of lower-priced trims to total sales. At its second-quarter earnings conference call, though, Nio's management projected the company's gross margins to rebound sharply and hit double digits in the third and fourth quarters. If Nio hits the goal (it will release its third-quarter numbers on Dec. 5), it could hugely help reinstate investors' confidence in the EV maker's prospects.
In a recent move that also deserves investors' attention, Nio announced plans to lay off 10% of its workforce for execution efficiency in the wake of rising competition, according to CnEVPost. It's a much-needed step, given Nio's cash burn, and I expect the company to cut costs further in the coming year. 2024 should also otherwise be an interesting year for Nio, as it launches its first mass-market EV called Alps in the latter half of the year.
All told, I believe there's more upside to Nio stock than downside from here.
