Nio (NIO 8.72%) and Rivian (RIVN 6.10%) both saw their shares skyrocket to all-time highs during the buying frenzy in growth stocks in 2021. However, both electric vehicle (EV) makers subsequently shed nearly 90% of their value as their revenue growth cooled off and rising interest rates popped their bubbly valuations. The broader slowdown of the EV market exacerbated that pain.
Yet, two key facts set Nio and Rivian apart from many of the EV makers that were washed away by that sector-wide sell-off. First, Nio and Rivian are already producing tens of thousands of vehicles annually as other smaller EV makers struggle to ramp up their production. Second, Nio and Rivian both went public through traditional IPOs instead of merging with special purpose acquisition companies (SPACs), which were notorious for making over-the-top forecasts during their pre-merger presentations.
So should contrarian investors buy Nio or Rivian even as the bulls shun most EV stocks?
Image source: Nio.
Nio faces slowing growth and shrinking margins
Nio is a leading Chinese EV maker that manufactures a wide range of electric sedans and SUVs. It sets itself apart from the competition with a network of battery swapping stations, which allow its drivers to quickly swap out their depleted batteries for fully charged ones instead of using traditional charging stations.
Nio's total number of deliveries more than doubled in both 2020 and 2021, yet only grew 34% to 122,486 vehicles in 2022. Its deliveries rose 33% year over year to 142,026 vehicles in the first eleven months of 2023. It attributed that slowdown to supply chain constraints, macro challenges, and the pricing war across China's EV market.
That slowdown wasn't disastrous, but Nio's vehicle margin also fell from a peak of 20.1% in 2021 to just 11% in the third quarter of 2023. As its vehicle margins declined, its operating expenses continued rising as it built more battery swapping stations across China and continued its expansion into Europe.
As a result, analysts expect its revenue to only rise 12% to 55.18 billion yuan ($7.73 billion) for the full year as its net loss widens from 14.56 billion yuan ($2.04 billion) to 18.55 billion yuan ($2.60 billion).
On the bright side, Nio's quarterly deliveries rose sequentially in the third quarter of 2023 and ended a two-quarter streak of sequential declines. Its vehicle margins have also expanded sequentially for two consecutive quarters. It was still sitting on $6.2 billion in cash, cash equivalents, and short-term investments at the end of the third quarter, so it can afford to rack up more losses as the pricing war drags on.
Its stock also looks cheap at less than two times this year's sales.
Rivian overpromised and underdelivered
Rivian produces electric pickups and a custom delivery van for its top investor Amazon. It had only produced 1,015 vehicles by the end of 2021, but it ramped up its production and manufactured 24,337 vehicles in 2022.
That growth was impressive, but Rivian had initially told investors it could produce 50,000 vehicles for the full year. It halved that forecast to 25,000 vehicles in early 2022 as it grappled with supply chain constraints, but it still narrowly missed that lower target. Its growth was further throttled by several safety-related recalls over the past year.
Rivian produced 36,961 vehicles in the first nine months of 2023, and it expects to produce 52,000 vehicles for the full year. But once again, that missed the consensus forecast (and its internal goal) of 62,000 vehicles. Therefore, Rivian's growth rates weren't that bad -- but its habit of over-promising and underdelivering rattled its investors. That's probably why Ford Motor, which was originally one of Rivian's top investors alongside Amazon, liquidated most of its stake last year.
Yet Rivian still ended its latest quarter with $9.1 billion in cash, cash equivalents, and short-term investments. Analysts expect its revenue to surge 165% to $4.39 billion as it narrows its net loss from $5.22 billion to $3.99 billion.
Those narrower losses can be attributed to the production of its in-house Enduro drive unit (which reduces its supply chain costs), hundreds of layoffs, and other cost-cutting measures. Rivian's growth rates look much healthier than Nio's, but its stock looks a bit pricier at three times this year's sales.
The better buy: Rivian
Nio's business is gradually stabilizing, but its revenue growth is still decelerating and its losses are widening. Rivian might have broken a few promises since its IPO, but its core business is still expanding at a healthy rate as it tightens up its spending. Therefore, I believe Rivian has a much better shot at bouncing back than Nio over the next few years.
