Among the slew of companies trying to stake their claim in the electric vehicle (EV) market is Rivian Automotive (RIVN 6.10%). With its focus on manufacturing SUVs and trucks tailored for outdoor enthusiasts, as well as commercial vans for businesses, its debut on the stock market in 2021 was one of the most highly anticipated in decades. Raising nearly $12 billion, it was the most valuable initial public offering (IPO) for an American company since Meta in 2012.
But since then, it's safe to say the hype has worn off. Its stock is down more than 80% as it tries to overcome the difficult challenges that accompany mass-producing EVs. While it is showing signs of improvement, Rivian has yet to turn a profit. With an inability to generate income, the company has seen its cash position reduced by more than 50% in just two years. If something doesn't change quickly, the company faces an uncertain future.
For the time being, Rivian remains a risky bet for investors looking for EV market exposure. Maybe one day, the company will turn it around, but for now there are better options out there for investors in the EV sector. Let's look at two of them.
Image source: Getty Images.
The undisputed champ
We can't talk about EVs without mentioning Tesla (TSLA -1.11%). In a short amount of time, it has become the most valuable automaker in the world and synonymous with the EV movement. Tesla's primary strength lies in its exceptional ability to mass-produce cost-effective EVs. As a result, the company not only manufactures the most EVs in the world today but also boasts one of the strongest financial standings in the industry, even if profit margins have recently taken a hit.
With its robust financial resources, Tesla is strategically positioned to capitalize on the burgeoning EV market as it expands its production capabilities with the construction of new factories around the world. Yet, its most attractive long-term value proposition has nothing to do with EVs.
Investing more than $1 billion in research and development efforts in the third quarter alone, Tesla is advancing technologies such as artificial intelligence, robotics, energy storage solutions, and autonomous driving. While some investors might favor Rivian for its perceived long-term potential, the reality is that Tesla is far from reaching its pinnacle.
The new challenger
Less familiar than more popular companies like Tesla or Rivian, BYD (BYDDY 4.08%) is a noteworthy player emerging in the EV market. Initially established as a battery manufacturer in the 1990s, BYD has leveraged this expertise to become the leading automaker in China and to potentially challenge Tesla for the global top spot.
The last year or so has been especially remarkable for BYD. Having manufactured over 1 million EVs in the first three quarters of the year, BYD closely trails Tesla's production figures by a mere 23%. Amid this surge, BYD's year-to-date profits have soared by an impressive 142% compared to the previous year, reaching over $3 billion. Most remarkably, BYD's gross profit margins even surpassed Tesla's, climbing to 22%.
Similar to Tesla, BYD has yet to reach its true potential. Leveraging its success in the competitive Chinese market, the company has its sights set on entering new markets. With new factories slated for construction in Brazil and Thailand and deliveries recently commencing in Mexico, BYD's range of vehicles at varying price points gives it an edge in emerging economies. As BYD expands beyond China, don't be surprised if one day BYD unseats Tesla as the EV champ.
The final verdict
Now, it might not be entirely fair to pit a newcomer like Rivian, with just five years of experience in the carmaking business, against seasoned pros like Tesla and BYD, who've been at it for over two decades. But that experience is precisely why Tesla and BYD are the smarter picks.
Starting any company is a challenge, and diving into the world of EVs brings even more hurdles with complicated supply chains and hefty costs. That's why it makes more sense for investors to focus on veterans like BYD and Tesla. Perhaps Rivian will find its footing one day. If it does, I will gladly reconsider adding it to my portfolio. But for the time being, Tesla and BYD are much better options for investors looking to capitalize on the growth of the EV market.
