As one of many hopeful competitors in the electric vehicle (EV) market, Rivian Automotive (RIVN +1.25%) has risen to become a popular investment for many investors looking to capitalize on future EV adoption. The ultimate hope is that the up-and-coming company can follow a trajectory like that of the current EV giant, Tesla (TSLA +0.91%).
However, with some examination, it will become abundantly clear that the chances of Rivian ever becoming the "next Tesla" are likely nothing more than visions of grandeur. Here's why investors are better off focusing on Tesla and ditching Rivian.
Image source: Getty Images.
The tale of the tape
The most glaring difference between Rivian and Tesla appears when comparing production and income. In 2023, Rivian manufactured 57,232 vehicles, a new record for the company. During that same span, Tesla produced more than 1.8 million vehicles, another record.
While it's clearly in the lead in terms of production, Tesla's true strength comes in the form of profits. In 2023, Tesla raked in a whopping $15 billion. In stark contrast, Rivian lost nearly $4.5 billion as expenses continued to outpace revenue even with production increasing.
Many Rivian bears and Tesla bulls point to this lack of profits as reason enough to avoid the start-up, but fail to recognize that even Tesla has been unprofitable for most of its history. Tesla's first year posting a net income didn't come until 2020, nearly a decade after its initial public offering (IPO).
In this regard, Rivian might be further ahead than Tesla was in its early years. It wasn't until 2015 that Tesla manufactured more than 50,000 vehicles. Rivian hit that milestone just three years after its public debut.
NASDAQ: RIVN
Key Data Points
The reason Rivian will never be Tesla
In the 2010s, the EV market was desolate compared to today. Beyond Tesla, there were only a few other participants trying to figure out the problem of mass-producing EVs. This is almost the exact opposite of the market today.
It's no secret that the EV industry has boomed over the last decade and will continue to grow in the future. But while some investors may see an easy dollar to be made by investing in EV manufacturers, the reality is that the market is exponentially more competitive than in Tesla's early days, ultimately spelling trouble for start-ups like Rivian.
In the previous era, the margin of error was significantly wider, which meant Tesla's lack of profitability wasn't as detrimental as it would be today. With several legacy automakers possessing vast resources and deep reserves of capital making their foray into the industry, there is little wiggle room for start-ups like Rivian.
Making matters worse, expectations are that the growth of the EV market is expected to slow in the U.S. in 2024. Fortunately for Tesla, its international presence and robust cash reserves of nearly $30 billion will help it weather a lackluster domestic market. For Rivian, its confinement to the U.S. and inability to turn a profit could spell serious trouble in 2024, and if prolonged, could trickle into following years.
All that being said, does this mean Rivian will never turn the corner? Probably not. But the window of opportunity is closing. Without any profits, Rivian has eaten into its cash reserves at an alarming rate. In just over three years, the company's cash and equivalents have decreased by more than 60%. Fortunately, it did have the largest IPO of any American company since Meta Platforms in 2014, but if something doesn't change, and change fast, Rivian likely only has a couple of years left of runway before needing to explore alternative financing avenues.
If Rivian is to become the next Tesla, a massive transformation would need to take place. Not only is that a difficult feat in today's market, but due to the capital-intensive nature of auto manufacturing, this process often takes years. With new challenges presenting themselves, Rivian doesn't have the luxury of time on its side like Tesla did.
For now, investors are better allocating to EV makers with proven track records and robust financial health. If not Tesla, then perhaps the Chinese-based BYD. But until Rivian begins to rein in expenses and get closer to a break-even point, it is probably best to leave it in the rearview mirror.
