TSLA vs. RIVN: Which electric car stocks are the best to buy?
In this article, I evaluate two electric vehicle (EV) stocks, Tesla (Nasdaq: Tesla(Rivian Motors)Nasdaq: Raven), using TipRanks’ comparison tool to determine which one is the best. Deeper analysis suggests bullish views for both.
Known for the Model S, Model Meanwhile, Rivian Automotive is an electric vehicle manufacturer that produces the R1S electric SUV and R1T electric pickup truck.
Despite a 9% decline over the past three months, Tesla shares are up 105% year to date, though they are only up 16% over the past 12 months. Rivian Automotive stock has been flat year to date after falling 22% over the past three months. The stock is down 48% in the past 12 months.
With such a wide divergence in stock price performance that has boosted Tesla and weighed on Rivian Automotive, it’s no surprise that Tesla is profitable while Rivian is not. A closer look is needed to determine if such a large difference in stock price performance is justified.
Tesla (NASDAQ: TSLA)
At a P/E of 71.6, Tesla is trading at a slight discount to the automaker’s current P/E of 74.9. However, given the auto industry’s three-year average P/E of 105, contradictory news headlines distorting the supply/demand picture for electric vehicle makers, and Tesla’s long-term stock price gains, a bullish outlook seems appropriate.
The biggest problem currently facing electric car makers is the plethora of headlines announcing declining electric car sales. In fact, comments from automakers seem to back up those headlines. For example General Motors (New York Stock Exchange: General Motors) CEO Mary Barra recently told analysts that the company is “taking immediate steps to enhance the profitability of (its) electric vehicle portfolio and adjust to slower growth in the near term.”
However, electric vehicle sales have reached new highs recently, which seems to contradict such comments. For example, Cox Automotive It reported in October that quarterly U.S. electric vehicle sales topped 300,000 for the first time in the third quarter. Additionally, electric vehicle sales reached a record share of about 8% of total U.S. auto sales, up from 7.2% in the second quarter and 6.1% a year ago.
A recent study reconciles these contradictory reports, finding that electric vehicle inventories nearly doubled from 3% of available new vehicles in January to 6% in September. This only indicates that EV sales have not been as active as automakers expected, not that EV sales are slowing down.
Despite concerns about rising inflation and interest rates, which are contributing to the backlog of unsold electric vehicles, these issues appear to be short-lived and affect the entire auto industry, not just electric vehicles. In fact, electric vehicle sales continue to reach new heights, indicating that demand is still strong. Thus, Tesla looks like a long-term buy-and-hold position, especially in light of its three-year stock price gain of 53% and its five-year gain of 906%.
What is the target price for TSLA stock?
Tesla has a Moderate Buy consensus rating based on 14 Buy, 14 Review, and five Sell ratings assigned over the past three months. At $252.61, the average price target for Tesla stock indicates 18.9% upside potential.
Rivian Automotive (NASDAQ:RIVN)
Rivian shares appear to be struggling lately due to an earlier-than-expected bond issuance. However, the company needed the additional capital to strengthen its balance sheet before geopolitical risks made borrowing more expensive than it is now. It certainly seems like a good idea now that the automaker has boosted its production guidance, suggesting a bullish view may be in order.
Unfortunately, the increasing number of headlines suggesting declining electric vehicle sales could have a major impact on Rivian, given its newness compared to Tesla. However, due to strong demand, the company boosted its production forecast by 2,000 vehicles for 2023 with its third-quarter earnings report, bringing its estimate to 54,000 vehicles.
Meanwhile, other electric car makers such as Lucid GroupNasdaq:LCID) lowered its production forecasts. In fact, reports of electric vehicle sales reaching a new record high in the third quarter also indicated that Tesla’s market share had fallen to 50%. Reports indicate that Rivian is one of the companies eating into Tesla’s share, buoyed by the fact that it beat analyst expectations for deliveries in the third quarter.
Unfortunately, Rivian is not profitable, but the trends discussed above suggest that could change quickly. In fact, the company expects to be profitable on a gross basis in 2024, with full profitability on the way.
Meanwhile, Tesla’s long-term stock price gains show what electric car makers can expect if they succeed over the long term. Additionally, Rivian is still some way off its 52-week high at around $36, so I feel comfortable suggesting a bullish view on it for now.
What is the target price for RIVN stock?
Rivian has a Moderate Buy consensus rating based on 12 Buys, seven Holds and one Sell rating assigned within the past three months. At $26.28, the average price target for Rivian Automotive stock indicates 64.9% upside potential.
Conclusion: Bullish on TSLA, bullish on RIVN
Headlines about slowing EV demand have certainly caused problems for EV stocks this year. However, investors should not forget the contradictory headlines that preceded claims of slowing demand by just weeks.
In addition, the current macroeconomic environment, with relatively high inflation and high interest rates, is not good for the overall automobile market. However, the economy and auto market should eventually recover, and long-term trends have been excellent for EVs, suggesting that it is only a matter of time before EV stock prices recover.
Given Tesla’s long-term dominance and Rivian Automotive’s recent superior operating performance, it seems likely that these two companies will lead the charge as EV adoption grows in the coming years.