There has been plenty of noise surrounding electric vehicle (EV) stocks lately. Sentiment ricochets between proclamations of booming growth one day to proliferating fears about slowing EV sales the very next quarter.
There’s also plenty of debate around the competitive set within this sector, particularly between EV juggernaut Tesla (NASDAQ:TSLA) and upstart Rivian (NASDAQ:RIVN). Let’s dive into both sides of this debate and determine which EV stock looks like the better bet today for investors.
Rivian is clearly far, far behind Tesla in almost every regard. However, RIVN stock still offers massive upside potential in the eyes of excited believers in the company. At the same time, it is burning through cash at a fiercely rapid clip, with profitability still years away by most estimates.
Meanwhile, Tesla is highly profitable already. As a result, TSLA looks far better equipped to handle the challenging economic storms swirling around us.
Let’s explore which one is more investable!
RIVN Stock Offers Tantalizing Growth Potential, But Profitability Remains Far Off
There’s simply no denying that Rivian is zeroing in on a large and lucrative niche in the EV market (namely, pickup trucks and SUVs). However, competition in these segments is rapidly heating up, with Tesla’s oddly-styled Cybertruck looming large, along with many other traditional automakers pivoting to electrification.
Personally, I struggle to see how Rivian thrives in this niche long-term without a clear and achievable path to consistent profitability. Rivian unfortunately burns through billions of dollars in cash annually, with consensus profitability in 2029 leaving many investors to wonder if they can simply wait that long to see any sort of capital return.
Even if Rivian delivers 100,000 vehicles in 2023, which would be roughly double its target, it will likely lose even more money due to the negative margins on those vehicles currently.
Meanwhile, Rivian’s cost-cutting does not appear to be progressing rapidly enough to offset this alarming cash burn rate meaningfully. Of course, Rivian has very strong revenue growth potential still on paper, assuming it can scale up successfully. However, without any profits or positive cash flow in sight, significant shareholder dilution seems inevitable in the coming years as Rivian’s cash reserves dwindle. Current Rivian shareholders should be aware of the very real risk of massive dilution this decade.
RIVN Stock is Unprofitable and Badly Positioned for Economic Storms
In stark contrast to Rivian’s situation, Tesla is already highly profitable, even when factoring in some temporary margin impacts from rising interest rates, which are negatively affecting all high-growth companies with lofty valuations.
As a result, Tesla appears to be far better equipped to handle the uncertain economic storms swirling around us compared to unprofitable cash-burning EV startups like Rivian. When interest rates ultimately begin falling again as inflationary pressures subside, Tesla looks poised to reap the rewards and expand both domestically and overseas into untapped markets.
Yes, Tesla’s upside potential from current levels around $220 is undoubtedly far lower than what Rivian bulls pin their hopes on. However, in my eyes, Tesla offers shareholders a much clearer and more achievable path forward.
For investors primarily seeking big upside potential in the EV space, I would strongly suggest reconsidering exposure to unprofitable pre-revenue EV startups with questionable paths to profitability, like Rivian. There are many other industries and sectors offering better value and margins worth considering.
Personally, I currently favor proven and established EV players from China over cash-burning Rivian, for those chasing big upside.
My Verdict: TSLA Offers a Better Risk-Reward Profile Currently
In summary, despite Rivian’s positive earnings surprise last quarter, I still favor TSLA over RIVN stock today for long-term investors. Rivian’s massive cash burn and uncertain timeline to profitability remain major concerns for me.
Meanwhile, Tesla is already profitable and far better equipped to weather any economic storms ahead. Of course, Rivian could still potentially prove all its skeptics wrong in the long run. But its overall risk-reward balance seems questionable currently without meaningful profits or cash flow on the horizon.
In conclusion, I rate TSLA stock a buy and RIVN a hold for now. Rivian may richly reward risk-tolerant short-term traders betting on market psychology and momentum. But I think this EV player is unlikely to upset the king of this space, at least not just yet.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.