With its monumental initial public offering (IPO) in November 2021, Rivian (RIVN 2.77%) arrived on the electric vehicle (EV) scene with a bang. As the largest IPO for an American company since Meta in 2014, Rivian raised a whopping $12 billion.
But since its public debut, things have been a little rough. In an industry that is growing more competitive by the year, Rivian has been confronted with challenge after challenge and continues to struggle to gain its footing. For this reason, and a handful of others we will explore, investors are better off owning EV companies with a track record of success, such as Tesla (TSLA 14.75%).
With several distinct advantages over not only Rivian, but the entire industry, Tesla is positioned to continue to grow over the long term and gain market share. Here are two reasons why Tesla is a much better stock to own than Rivian.
Playing a game of serious catch-up
There is one obvious problem with Rivian: It has never turned a profit. Even though the company has made commendable progress increasing production, expenses continue to outpace revenue, forcing the EV maker to operate solely off of its cash reserves.
Fortunately for Rivian, its massive IPO provided some runway to keep the business up and running, but even this is beginning to dwindle. In just over two years, the company's cash and equivalents have plummeted more than 60%, currently sitting at just under $8 billion. If something doesn't change -- and change fast -- Rivian likely only has enough cash to last another two to three years before having to explore other financing options.
Then there's Tesla. While its profit margin slipped in 2023 after it implemented price cuts to stimulate demand, it still boasts one of the most impressive and profitable business models in the industry. As of last count, Tesla brings in roughly $8,200 per vehicle sold. The next-closest competitor is China-based BYD, with around $1,700.
Even as 2023 saw profit margin decline, Tesla still set new records in terms of income and production. In light of that slimmer profit margin, a new all-time high in net income is even 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 as high interest rates dissuade would-be buyers, Tesla's financial strength gives it the unique ability to weather short-term 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 invest in operations while competitors will be forced to scale back and focus on efficiency.
Image source: Tesla.
The EV market enters a new era
Few other companies have rewarded investors like Tesla has over the last few years. Since 2019, its stock is up more than 800%. With expectations that the EV market will continue to grow in the future, perhaps this is why many investors may have flocked initially to Rivian, hoping that it will follow a similar trajectory to Tesla's monumental growth.
However, today's EV market landscape is much different compared to when Tesla was first getting started. Back then, Tesla was one of just a few companies trying to mass-produce EVs. With limited competition and wide open market for the taking, the margin of error was significantly larger.
Lack of profits in a capital-intensive industry like EV manufacturing isn't uncommon. In this regard, Rivian's lack of income is par for the course. Tesla went nearly a decade before posting a full year of profits.
However, unlike in Tesla's early days, the stakes were higher. Now, the industry is flooded with not only start-ups but a slew of legacy automakers with vast resources, some of which have been manufacturing cars for nearly a century. Add in the fact that the EV market isn't growing as rapidly as it was in the 2010s, and Rivian's future prospects become all the more dicey. A proven and profitable business model becomes a necessity in a maturing EV landscape, not just a luxury.
The final consensus
Is it all doom and gloom for Rivian? Probably not. The company is showing progress in terms of production and revenue and also recently unveiled a more affordable model that should hit the market in 2026. In addition, the decision to hold off on construction of its costly Georgia factory could be seen as a sign of prudence that the company needs to figure out how to scale at profit at its current factory in Illinois.
Yet, the type of turnaround Rivian needs is monumental, making it increasingly risky to own its stock. With a capital-intensive supply chain, scaling EV manufacturing often takes years, meaning there's no telling when (or if) Rivian will make it to a break-even point. For investors looking for the best of the EV industry, Tesla remains the ideal option.
