Could investing in Rivian at $16 be like buying Tesla stock 10 years ago?
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Those who invested in Tesla (NASDAQ:TSLA) a stock that was 10 years ago now generating impressive profits.
But few expect the electric carmaker to repeat that performance over the next decade. If that happens, its stock market valuation will be more than $14 trillion by 2033. appleCurrently less than $3 trillion.
In 2014, Tesla sold 31,655 vehicles. It is expected to reach 1.8 million in 2023.
For comparison, Toyota It is currently the world’s largest car manufacturer, selling 10.5 million units in 2022. There is clearly potential for significant future expansion.
But as the company matures, I doubt Tesla shareholders will ever again see the same explosive growth of the past 10 years.
Chalk and cheese
During the third quarter of 2023, Elon Musk’s company generated gross vehicle profits of $3.67 billion, on sales of $19.63 billion. That’s $8,431 per vehicle – a margin of 18.7%.
Compare this to performance Rivian Cars (NASDAQ:RIVN).
During the same period, it sold 15,564 of its electric pickup trucks and SUVs. It reported revenue of $1.34 billion, but it recorded a total Loss $30,648 per vehicle sold.
In other words, it sells its cars for less than it cost to produce them. This does not take into account overhead expenses. If these charges and interest charges are included, the loss per unit during the quarter increases to $87,831.
Considering that the list price for Rivian’s base model is around $75,000, it’s clear to me that the company is still a long way from turning a profit.
However, shareholders can take some comfort that its performance is improving on a quarterly basis.
Through a combination of economies of scale, supplier price reductions and technological innovation, Rivian hopes to break even by the end of 2024.
Then and now
But the world is a different place than it was 10 years ago.
In 2014, Tesla had a vehicle margin of 27.6%, and its gross profit per vehicle was $27,877. Both companies would be happy with similar numbers today.
The company was a pioneer and the first important player to enter the market. It was considered a niche manufacturer and faced little competition. Now there is fierce competition with every major manufacturer selling electric models. In response, Tesla has reduced its prices twice in 2023.
Because of these structural changes in the industry, I believe there is less room for Rivian’s stock price to emulate the success of its larger competitor.
But assuming it doesn’t run out of cash — its CEO says it won’t need to raise more money until 2025 — I see great potential for the company.
Its market capitalization is currently around $15 billion, and Tesla’s market cap is $675 billion.
Given the former’s losses, it’s difficult to compare these valuations. However, using the price-to-sales ratio over the past 12 months, Tesla’s ratio looks more inflated. It trades at nearly seven times revenue, compared to 3.86 for Rivian.
This suggests that the smaller company currently offers better value.
Overall, I think Revan will make the better investment. Its vehicles receive good reviews and Americans love their pickup trucks. But even at $16 a share, I don’t think over the next decade it will match the historical performance of its more famous competitor.
However, next time I have some spare cash, I will consider taking a position.