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Electric vehicle (EV) stocks have been on a bumpy ride lately. But if Teslas (NASDAQ: TSLA) journey proves that there is tremendous upside potential for companies that do well. If you want your portfolio to benefit, you need to separate potential winners from the growing list of failed EV ventures.
Looking ahead to 2030, there’s one EV stock in particular that I like.
There’s one thing EV investors need to know
If you want to gain widespread exposure to the electric car industry, you can always buy one diversified EV ETF. But there are several problems with this approach. The biggest is the enormous variation in what the individual players in the sector have to offer. Tesla, for example, is much more than an electric vehicle company. It has business segments focused on distributed solar, utility-scale battery storage, autonomous driving software and charging infrastructure. Companies like it Clear groupMeanwhile, it’s pure electric vehicle play, with the future entirely dependent on their ability to design, produce, market and sell electric vehicles to customers.
This industry is also capital intensive and there is enormous variation in these companies’ access to capital. As a more mature competitor, Tesla generates revenue and operating cash flow. Its $775 billion market capitalization allows it to sell equities and tap debt markets much more efficiently than its smaller competitors. Consider Lucid again, with a market cap of just $9 billion. The country is losing money on the bottom line and bleeding billions of dollars every year from an operating cash flow perspective.
With all this in mind, it’s important to know what you’re betting on when investing in an EV stock. You need to know exactly what the company needs to be successful in the coming years, as well as how well it is financially equipped to stay afloat in an industry where companies typically suffer billions of dollars in losses for years before realizing any profits – when they come completely out of the red.
This EV stock is your best long-term bet
When it comes to the combination of high growth potential and reliable access to long-term capital, few EV stocks can match it Rivian automotive sector (NASDAQ: RIVN). A few months ago I stressed it to the extreme attractive valuation after a sector-wide correction. Since then, Rivian’s shares have nearly doubled in value, but it’s not too late to get in on the action. Shares still trade at just 3.3 times sales. By comparison, Tesla trades at 9.1 times sales, while Lucid trades at 13.4 times sales. But if you dig deeper, there’s even more to love.
In addition to a relatively attractive valuation, Rivian enjoys some of the best customer loyalty in the industry. Although there are only a few models currently on the market, it has received a J.D. Power award for the most satisfying ownership experience, and was rated by Consumer Reports. About 86% of owners say they would buy a Rivian again. That’s the best rate of any car brand, EV or otherwise.
Rivian currently only has a handful of pricey models available. But that will change in the next two to three years. It recently unveiled its upcoming R2, R3 and R3X models. The company subsequently announced that it had received an $827 million incentive package from the state of Illinois to expand its manufacturing operations there. And the Biden administration’s big new tariffs on Chinese electric vehicles will only serve to boost domestic demand for Rivian models.
In terms of access to capital, Rivian has an ace up its sleeve. It was signed during a financing round in 2019 Amazon as a major investor. In 2021, it closed a $2.5 billion private financing round led by Amazon’s Climate Pledge Fund. And last month, the company formed a joint venture that will create a global automaker Volkswagen Invest $1 billion in Rivian initially, with up to $4 billion in additional investments planned over the coming years.
Rivian is now a publicly traded company and has access to the stock market, allowing it to raise money through secondary stock offerings. But it also has a stable of long-term, deep-pocketed investors – something many other EV startups lack. The advantage of capital should not be underestimated. Just last month, EV maker Fisker filed for bankruptcy, citing high costs and lower-than-expected growth of the sector. As Tesla has proven, EV companies must be able to invest heavily at a loss for years before profits emerge. Tesla didn’t post a full annual profit until 2020, twelve years after Musk took over as CEO. During that period, Tesla was able to increase its annual research and development budget from $200 million to $1.3 billion, even as losses piled up.
Over the past twelve months, Rivian has generated approximately $5 billion in revenue. The company is still losing $39,000 on each vehicle it makes, although that’s a significant improvement from the year before, when it lost $67,000 per vehicle. These losses are partly a reflection of Rivian’s relatively small size. It delivers about 14,000 vehicles per quarter, while Tesla delivers almost 400,000 vehicles per quarter.
Despite the current losses, the growth potential for Rivian is clear. With a range of more affordable models coming to market in 2025 and 2026, plus ample opportunity to continue raising capital to support these launches, Rivian looks like a great EV stock for patient growth investors.
Should You Invest $1,000 in Rivian Automotive Now?
Consider the following before purchasing shares in Rivian Automotive:
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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. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Tesla, and Volkswagen Ag. The Motley Fool has one disclosure policy.
Prediction: This could be the best performing EV stock through 2030 was originally published by The Motley Fool