The electric vehicle (EV) market has expanded over the past few years, with EVs accounting for 10% of all light-duty vehicle sales in October, up from 6.8% at the end of 2022. But rising vehicle prices, uncertainty around EV tax credits, and rising competition have contributed to the volatility around electric vehicle stocks over the past couple of years.
That's made determining which EV start-ups might be a good long-term investment difficult. To help you decide, let's take a closer look at two high-profile EV companies, Rivian Automotive (NASDAQ: RIVN) and Lucid Group (NASDAQ: LCID), to see which one is the better electric vehicle stock.
Image source: Getty Images.
What's happening with Rivian
Rivian makes electrified vans, pickup trucks, and SUVs and has caught the attention of leading tech and automotive companies, including Amazon and Volkswagen. Amazon was an early investor in Rivian and still holds about 17% of the company, as well as an order of at least 100,000 electric delivery vans. More than 20,000 vans have been delivered, with the rest expected by 2030.
Additionally, VW recently created a joint venture with Rivian to get its hands on some of Rivian's in-vehicle technology. In exchange, Rivian will receive up to $5.8 billion over the next few years.
These deals support Rivian in a couple of ways. First, the money from VW will give Rivian funding to build its upcoming R2 and R3 vehicles. It also shows that one of the world's largest automakers sees value in a small start-up's technology. Secondly, Amazon's large order gives Rivian credibility that it can take on huge orders and increase vehicle production over time.
Just as importantly, Rivian is making strides to reduce its losses and get closer to gross profitability. In the third quarter, Rivian's losses of $1.1 billion were an improvement from a loss of $1.37 billion in the year-ago quarter. Management also reiterated that Rivian will be profitable on a gross profit basis at the end of the fourth quarter.
To help get there, Rivian retooled the production of its vehicles earlier this year. The company changed its wiring harnesses, removing 100 steps from the battery-making process, and cut 500 parts, reducing the cost of materials by 35%.
It's moves like these which give me confidence that Rivian is committed to reaching profitability and isn't afraid to change its short-term strategies (vehicle production) to achieve long-term objectives (gross profitability).
What's happening with Lucid
I've kept a close eye on Lucid since it went public a few years ago. As a car enthusiast, I think Lucid has created a stunning product with the Air sedan (an award-winning car), and its upcoming Gravity SUV will likely continue the company's commitment to creating fantastic vehicles.
But as an investment, I'm less sold on Lucid. Unlike Rivian, Lucid's losses widened in the third quarter to $992 million, compared to a loss of $631 million in the year-ago quarter. It's also troubling that Lucid recently raised additional funds through a public offering of 262 million shares, which diluted shareholder value.
The company also received another investment from Saudi Arabia's Public Investment Fund (PIF) a few months ago, to the tune of about $1.5 billion. With the recent investment and sale of additional stock, Lucid's management says its financial runway extends well into 2026.
There's nothing wrong with needing more funding as the company introduces new models and ramps up production, but it does make me wonder how many times Lucid may have to seek out additional PIF funding to keep the lights on.
The verdict: Rivian is the better EV stock
For all the reasons above, I think Rivian is the better EV stock. The company is cutting costs, narrowing its losses, and is close to achieving gross profitability. Additionally, its shares are much cheaper than Lucid's. Rivian's stock has a price-to-sales ratio of 2.8 right now, while Lucid's is 7.2. Both stocks will likely experience volatility in the short term as the EV market takes shape, but with its cheaper price and narrowing losses, Rivian looks like the better buy.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has positions in Rivian Automotive. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
