Making its public debut in November 2021, Rivian (RIVN 6.10%) arrived on the electric vehicle (EV) scene with a bang. The company's initial public offering (IPO) was the largest for an American company since Meta in 2014, raising a whopping $12 billion.
But since its historic debut, Rivian has struggled to find its footing in an industry that is growing more competitive by the year. That's why investors are better off owning companies that already have a proven track record of success, such as Tesla (TSLA -1.11%).
As the competition heats up, Tesla's distinct advantages will help it continue to grow over the long term and possibly even squash the dreams of hopefuls like Rivian. Here are a few reasons why Tesla is a much better stock to own than Rivian.
Image source: Getty Images.
Just another record-breaking year
At first glance, there is one obvious problem with Rivian -- it has never turned a profit. Quarter after quarter, the company continues to eat into its cash reserves, as it has been unable to get a handle on growing expenses.
Fortunately, its massive IPO provided the necessary cushion to keep operations up and running, but even this is beginning to dwindle. In just over two years, Rivian's cash and equivalents have plummeted more than 60%. They're currently sitting at just under $8 billion. Rivian has enough cash to last another two to three years before it has to raise more capitalSSS.
Then there's Tesla. While profit margins slipped in 2023 as strategic price cuts made their presence felt, Tesla still boasts one of the most impressive and resilient business models, not just in the EV industry, but in the entire world. Its ability to scale production cost-effectively while manufacturing vehicles customers love has given it a type of financial strength that is hard to come by.
In 2023, Tesla's net income totaled $15 billion as it hit new production records yet again. When considering those smaller profit margins, a new all-time high in net income looks all the more impressive and goes to show just how robust Tesla's business truly is.
While 2024 is shaping up to be lackluster for the entire EV industry with interest rates remaining elevated, Tesla's financial strength will help it endure this year's challenges while continuing to build for a prosperous future. With a whopping $29.1 billion in cash and equivalents, Tesla has the funds to expand and refine operations, while competitors will be forced to scale back operations and focus on efficiency.
A classic growth story continues
After it's grown more than 800% in the last five years, it's natural to think Tesla may have hit a ceiling. This is why many investors may have originally flocked to Rivian, hoping that it will follow a similar trajectory to Tesla in its early days.
However, the assumption that Tesla doesn't have more room to grow is a mistake. Take its global expansion efforts as evidence. The company is in the beginning stages of construction at its new Gigafactory in Mexico, and it's in the final rounds of negotiation to build another factory in India. As Tesla continues to grow its international presence, Rivian holds no plans to expand abroad and remains confined to the U.S. market, one that Tesla dominates.
Adding to Tesla's allure over Rivian is the development of its next-gen vehicle. Production of the next-gen vehicle, codenamed Redwood, is expected to start in 2025. With an estimated price tag of $25,000, Redwood has the potential to make owning an EV a little more affordable and lead to a new wave of growth for Tesla.
The upcoming launch of the next-gen vehicle is a testament to Tesla's ability to reduce costs, while at the same time highlighting a major issue that Rivian is facing -- affordability. Even without the next-gen model, Tesla vehicles are significantly more affordable than any of Rivian's offerings. Currently, the cheapest Rivian model available for purchase costs almost $73,000, and that includes EV tax credits. Those same tax credits could be used to buy a Tesla for as little as $38,000.
While Tesla outdoes Rivian in terms of growth and pricing, arguably the most important difference separating the two isn't related to cars. Remember, Tesla is more than just a vehicle manufacturer. The company is actively developing technologies like artificial intelligence, autonomous driving, supercomputers, and humanoid robots -- all of which hold the promise to catapult Tesla to new heights and help CEO Elon Musk realize his vision of making Tesla the most valuable company in the world.
It's worth noting that while Musk recently threatened to pack up Tesla's extracurriculars unless he's given more voting control over the board, growing consensus is that he would be unwise to do so. If he were to develop these other technologies outside of Tesla, it would significantly devalue his 13% stake of company shares. As such, many believe that a new compensation plan will be made with agreeable terms that appease both parties.
Final considerations
Is it all doom and gloom for Rivian? Probably not. The company is showing progress in terms of production and revenue. In addition, it plans on breaking ground on a new factory in Georgia this year that holds the potential to pump out 400,000 vehicles a year, a significant increase from its 54,000 in 2023.
But the lack of financial strength is concerning. There's no telling whether Rivian will make it to see the day production at its new factory begins, as long as it is unable to turn a profit. For investors looking for the best of the EV industry, let alone companies shaping society's future, Tesla remains the ideal option.
