Electric vehicle (EV) stocks have been on a bumpy ride recently. But as Tesla's (NASDAQ: TSLA) journey proves, there's huge upside potential for companies that get it right. If you want your portfolio to benefit, you'll need to separate potential winners from the growing list of failed EV ventures.
Looking ahead to 2030, there's one EV stock in particular that I love.
One thing EV investors must know
If you want broad exposure to the electric vehicle industry, you can always buy a diversified EV ETF. But there are several problems with this approach. The biggest is the huge variation in what the sector's individual players have to offer. Tesla, for instance, is much more than an electric vehicle company. It has business segments focused on distributed solar, utility-scale battery storage, autonomous driving software, and charging infrastructure. Companies like Lucid Group, meanwhile, are pure plays on electric vehicles, with futures entirely dependent on their ability to design, manufacture, market, and sell EVs to customers.
This industry is also capital intensive, and there's huge variation in these companies' access to capital. As a more mature competitor, Tesla is generating earnings and operating cash flow. Its $775 billion market cap, meanwhile, allows it to sell shares and tap debt markets much more efficiently than its smaller competitors can. Again, consider Lucid, with its market cap of just $9 billion. It is losing money on the bottom line and is bleeding billions of dollars every year from an operating cash flow perspective.
With all of this in mind, it's important to know what you're betting on when investing in an EV stock. You must know exactly what the company needs to succeed in the years to come, as well as how well it is financially equipped to stay afloat in an industry where companies typically generate billions of dollars in losses for years before realizing any profits -- if they make it out of the red at all.
This EV stock is your best long-term bet
For the combination of high growth potential and reliable access to long-term capital, few EV stocks can match Rivian Automotive (RIVN +0.73%). Several months ago, I highlighted its extremely attractive valuation following an industrywide correction. Since then, Rivian shares have nearly doubled in value, but it's not too late to get involved. Shares still trade at just 3.3 times sales. Tesla, by comparison, trades at 9.1 times sales, while Lucid trades at 13.4 times sales. But when you dig deeper, there's even more to love.
Apart from a relatively attractive valuation, Rivian enjoys some of the best customer loyalty in the industry. While it only has a couple of models on the market currently, it has received a J.D. Power award for most satisfying ownership experience, and was named one of the most beloved car brands by Consumer Reports. Around 86% of owners say they'd buy a Rivian again. That's the best rate of any car brand, EV or otherwise.
Rivian currently only has a handful of pricey models available. But that's set to change over the next two to three years. It recently unveiled its upcoming R2, R3, and R3X models. Then it announced it had received an $827 million incentive package from the state of Illinois to expand its manufacturing operation there. And the Biden administration's major new tariffs on Chinese electric vehicles will only serve to boost domestic demand for Rivian's models.
In regard to access to capital, Rivian has an ace up its sleeve. During a 2019 funding round, it signed Amazon as a major investor. In 2021, it closed a $2.5 billion private funding round led by Amazon's Climate Pledge Fund. And just last month, the company formed a joint venture that will see global automaker Volkswagen invest an initial $1 billion into Rivian, with up to $4 billion in additional investments planned over the coming years.
Now a public company, Rivian has access to the equity market, so it can raise funds through secondary stock offerings. But it also has a stable of deep-pocketed, long-term investors -- something many other EV start-ups lack. The advantage of capital should not go under appreciated. Just last month, EV maker Fisker filed for bankruptcy, citing high costs and lower-than-expected industry growth. As Tesla proved, EV companies must be able to invest heavily at a loss for years before profits emerge. Tesla didn't post a full year profit until 2020, 12 years after Musk took over as CEO. During that time span, Tesla was able to boost its annual research and development budget from $200 million to $1.3 billion even as the losses accumulated.
Over the last 12 months, Rivian has generated around $5 billion in sales. It's still losing $39,000 for every vehicle it makes, though that is a sizable improvement from the year before when it lost $67,000 per vehicle. These losses are partially a reflection of Rivian's relatively small size. It's delivering around 14,000 vehicles per quarter, while Tesla is delivering nearly 400,000 vehicles per quarter.
Despite the current losses, the growth potential for Rivian is clear. With a suite of more affordable models coming to market in 2025 and 2026, plus ample avenues to continue raising capital to support these launches, Rivian looks like a great EV stock for patient growth investors.
