There may never be another Tesla (NASDAQ: TSLA). Shares of the company have increased in value by 27,000% since 2010. A small initial investment could have become hundreds of thousands of dollars over that time. Tesla's high-profile leader, Elon Musk, has pushed the company into many lucrative verticals, everything from electric vehicles and solar power to distributed energy and robotaxis.
While no electric car competitor may reach Tesla's $1 trillion market cap anytime soon, it would still be very profitable to find the next Tesla, at least in terms of a small EV business ready to scale aggressively. No Tesla competitor looks to have more growth upside over the next few years than Rivian (RIVN 1.09%). In fact, I think buying Rivian shares now could really pay off. Just be aware of the risks before jumping in.
Rivian has all the pieces in place for massive growth
To buy a stock for life you need to be confident that the underlying business can continue growing for decades to come. When it comes to electric vehicle demand, the macro landscape is very promising. Right now, less than 10% of U.S. vehicle sales are electric. By 2030, however, market penetration could approach 20%, according to some estimates, a more than doubling over just five years.
Longer term, the growth prospects are even more encouraging. Some developed countries already have EV penetration rates above 90%. By 2040, we could see a majority of U.S. sales being electric, providing a multidecade growth runway for EV manufacturers to sell into.
Which companies will dominate this growth opportunity? Manufacturers that can deliver low-cost EVs for the masses. Most EVs right now are priced as luxury options. Tesla's Model X and Model S vehicles, for example, can cost upward of $100,000, depending on options. But more than 90% of Tesla's sales come from its Model 3 and Model Y vehicles -- later-generation EVs with starting prices below $50,000. Tesla got its start with luxury EVs, but it was its low-priced models that really put it on the map.
Right now, Rivian is behind Tesla in terms of reaching this mass market. It has only two luxury vehicles, both priced at $70,000 or above. But that should all change next year when Rivian begins producing its first mass-market model, the R2, which will be followed up by even more affordable options like the R3 and R3X. All of these models are expected to debut under $50,000.
These mass-market vehicles not only set up Rivian to replicate Tesla's proven road map for growth, but they also position it to compete aggressively as EV penetration rises in the years and decades to come. Without mass-market models, many EV makers will struggle to ride this rising wave, but not Rivian.
Image source: Getty Images.
1 risk every Rivian investor should understand
Rivian's diminutive $17 billion market cap provides huge growth upside, especially compared to Tesla's $1 trillion valuation. Importantly, however, Rivian doesn't have other promising business segments like Tesla's robotaxi initiative that should add big growth to the company long term. Plus, Rivian remains years behind Tesla in terms of rolling out mass-market vehicles that are purchased by the millions.
Still, Rivian's relatively cheap valuation more than makes up for these weaknesses. Shares trade at just 3.1 times sales compared to 12.7 times sales for Tesla stock. That valuation is too cheap to ignore, but don't expect quick returns. Tesla stock traded sideways for years even as growth ramped up, leaving the biggest gains for long-term shareholders -- we're talking investors that held on for a decade or more.
Rivian looks well positioned for growth over the long term. And its valuation doesn't fully reflect its potential. The biggest risk may not lie with the company but with investor behavior. If you're looking for easy gains, this is not the company for you. But if you're looking for a high-upside stock that you can own for a lifetime, consider building a small position.
