It hasn’t been an awesome begin to the 12 months for Rivian Automotive (RIVN 1.29%) inventory. Shares are down 16% 12 months so far as traders’ religion within the electrical automobile (EV) progress story dwindles. The corporate itself continues to be in its early phases when bills stay excessive and incomes a revenue continues to be comparatively far out.
One would assume a few of these traders would as a substitute search a worthwhile EV maker like Tesla (TSLA 4.69%). But Tesla inventory has fallen twice as far because the begin of the 12 months. However Tesla inventory has a a lot greater story. And its 42% drop to date in 2025 got here after a monumental run greater after the U.S. election in November.
Buyers who need publicity to a still-growing EV sector now have an attention-grabbing resolution to ponder. Would it not make sense to personal Rivian with its robust and rising model and excessive long-term potential? Or ought to one purchase the dip in Tesla inventory based mostly on its present profitability and prospects past its present EV lineup.
Electrical autos, synthetic intelligence, and far more
Tesla traders have at all times seemed past the prevailing electrical automotive gross sales. Even because the EV maker had simply begun ramping as much as mass-volume automobile gross sales, CEO Elon Musk boldly predicted the corporate could be producing 20 million autos yearly by 2030. Musk has since backed off from that declare as Tesla’s gross sales progress has slowed amid rising competitors and slower-than-expected market penetration for EVs.
However traders have been valuing Tesla shares at lofty ranges that appeared to imagine Musk’s EV gross sales predictions would come to fruition. Now the corporate has a gentle and worthwhile EV enterprise. Even in what was thought of a disappointing 12 months, Tesla generated greater than $7 billion in web revenue and $3.6 billion in free money move. It ended 2024 with $36.6 billion in money and investments. Nobody can argue that the corporate hasn’t been profitable so far.
Tesla is greater than an electrical automotive firm, too. Its vitality storage enterprise had a document 12 months final 12 months with its highest-ever gross revenue. It’s closely investing in synthetic intelligence (AI) infrastructure. The corporate plans to make use of that to develop a self-driving EV taxi enterprise and for its humanoid robotics aspirations. Tesla’s investments final 12 months quintupled the compute energy obtainable for AI coaching.
Extra complicated than simply the enterprise
Investing in Tesla has gotten extra sophisticated, although. Musk has probably alienated a few of Tesla’s buyer base and potential market together with his entry into politics. The implementation of tariffs and a possible commerce conflict additionally may negatively impression the enterprise. Buyers have to think about all dangers, together with the potential for China to retaliate towards Tesla and Musk. Tesla’s Shanghai plant is its largest and the Chinese language market is vital to the enterprise.
Talking of dangers, the inventory’s valuation stays a giant one. The latest ahead price-to-earnings (P/E) ratio is 90 even after the inventory plunged almost 50% from a December excessive of about $480 per share.
Picture supply: Rivian Automotive.
Rivian has its personal lofty aspirations
Rivian does not generate income but. That is one of many largest dangers for traders. Ramping up automobile manufacturing to a scale that may generate earnings takes quite a lot of capital. And Rivian has been bleeding cash for a number of years now.
Whereas it did obtain its first gross revenue within the fourth quarter, it nonetheless expects 2025 to be within the pink. Administration’s steerage requires an adjusted EBITDA loss of between $1.7 billion and $1.9 billion for the complete 12 months. That compares to about $2.7 billion final 12 months after delivering about 51,500 autos.
However there’s favorable information for Rivian as effectively. the corporate ended 2024 with $7.7 billion in money and equivalents. It’ll start to provide its next-generation R2 SUV later this 12 months to increase its automobile lineup for the primary time. Rivian plans a smaller model referred to as the R3 to observe. Each are anticipated to be extra reasonably priced and might be enticing to a extra mass market of shoppers.
Each shares have potential
Tesla and Rivian every have distinctive sights and dangers for traders. Tesla has a gentle and worthwhile enterprise. However at its inventory valuation, it wants its self-driving expertise to be accepted by regulators and prospects. Its vitality storage enterprise additionally must proceed to develop — and all whereas Elon Musk is more and more turning into a polarizing determine.
There’s much more threat with Rivian. It has developed a profitable model, however not at a quantity of gross sales near what it wants to achieve. The R2 and subsequent R3 should steer the corporate to profitability.
I personal each shares, as a result of I feel every firm has the potential for vital long-term success. Nonetheless, I personal them at an allocation stage that’s commensurate to the chance every enterprise is uncovered to. Buyers eager to determine between these two EV shares have to steadiness these dangers towards the potential long-term success of every.
Howard Smith has positions in Rivian Automotive and Tesla. The Motley Idiot has positions in and recommends Tesla. The Motley Idiot has a disclosure coverage.
