Right now, the automotive industry is on the cusp of huge change. Electric vehicle (EV) market share in the U.S. is nearing 8%, which is roughly around the level when a technology transitions from early adopters to mainstream customers.
If you're looking for stocks positioned to ride the wave of transition to EVs, both Rivian Automotive (RIVN 6.10%) and QuantumScape (QS 5.69%) offer investors unique plays and are potentially poised to surge higher as EVs take over the roads.
Go big, or go home
Generally, in the automotive industry, bigger vehicles mean bigger profits. SUVs and full-size trucks have kept the lights on at Detroit factories for decades, and they haul in considerably higher margins than mainstream passenger cars.
That's good news for Rivian, a young EV company that initially focused its first two vehicles on the SUV and truck segments. Rivian's vehicle quality has been well-received, with the R1T (truck) ranked highest overall for consumer satisfaction in J.D. Power's "2023 U.S. Electric Vehicle Experience Ownership Study," which bumped Tesla's Model 3 lower in the process.
But what's a high-quality vehicle if it's not turning a profit for investors? While that's fair, keep in mind that almost all EVs are currently unprofitable, with lower production volumes and high battery costs.
However, don't discount the progress Rivian has made on that front. During the third quarter of 2022, Rivian lost roughly $140,000 per vehicle, and that dropped to roughly $32,500 by the second quarter of 2023. Rivian also anticipates being gross profit positive by the end of this year, which would certainly boost investor confidence. The path to profitability is feasible sooner rather than later.
Another great factor about Rivian going big with its vehicles right off the bat is that it enabled the company to avoid Tesla's yo-yo-like price changes, which forced many young EV makers to slash prices. As Rivian's R1T and R1S don't compete in the same segments as Tesla's passenger cars, it wasn't forced to slash prices just yet.
Outside of Rivian's SUV and truck, the company also makes electric commercial delivery vans. What was once an exclusive partnership to deliver 100,000 vans to Amazon is now open for other customers, and AT&T has already jumped on board as a new customer for Rivian vans. Many more buyers could sign up over the next couple of years.
Rivian has a lot going for it and drove into 2024 with momentum. If the company's high-quality vehicles keep demand strong on the road to its next generation of vehicles due to launch in 2026, and the broader EV market continues to gain traction on U.S. roads, the young EV automaker appears poised to surge higher as it continues to bring costs down.
Go really big, or go home
If you thought Rivian's larger vehicles were going big, then QuantumScape is truly going big or going home. The company has been developing new battery technology for 12 years. It's currently testing battery technology that would improve battery cost, range, and time to charge -- essentially taking a step ahead in every possible direction.
Let's dive a little deeper into the technology. QuantumScape's solid-state battery removes the flammable liquid electrolyte solution in today's lithium-ion batteries. This not only improves performance and reduces costs -- it entirely removes the anode bill of materials, which improves safety.
Furthermore, a solid-state battery can charge from 0% to 80% in less than 15 minutes, which is roughly twice as fast as conventional EV batteries. Recent testing also sent the stock surging higher on news that its battery lifespan was performing above expectations. The battery cells were testing at a level of 300,000 miles while still retaining 95% of charge. That's a huge leap forward that would prevent customers from having to replace the battery as often, a big cost savings.
Now to be fair, this is just lab testing. There's an incredible amount of work to be done to further develop the technology and test it in the real world, before even production headaches at commercial levels begin.
While the technology has a long way to go, and the company is pre-revenue and still largely unproven as far as Wall Street standards go, investors can rest knowing management objectives are long-term.
In fact, when looking at management incentives, you'll find milestones that include 20% of worldwide market share in automotive battery cells, $10 billion in GAAP revenue over a period of four quarters, and $300 stock price target.
Will these two stocks surge?
Rivian and QuantumScape both have massive upside as the U.S., and the rest of the world, transition to EVs. Rivian needs to improve profitability and bring prices down with its next generation R2 vehicles to unlock demand from mainstream consumers, but if it makes clear progress and becomes gross profit positive in 2024, investors could jump on board in droves.
For QuantumScape, the story will take much longer, but its sights are set at game-changing levels if it can produce its battery technology at commercial levels. The company has partnerships set up with a number of major automakers that are interested in the technology for good reason.
These stocks are the definition of high-risk and high-reward investments. While they are positioned to surge in the years ahead, investors would be wise to limit these risky investments to a small portion of their portfolio and to keep an eye on any developments that could change the investing thesis.
