Tesla vs Rivian: How the fresh EV startup compares to the electric-car giant
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Rivian vs. Tesla: Which AI-Powered Electric Vehicle Maker Is the Better Investment?
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A David versus Goliath battle in the high-growth EV sector.
Vehicles have become increasingly electronic over the years. Now that electric vehicles (EVs) don’t even have combustion engines, vehicles resemble computers more than machines. EV companies like Tesla (TSLA -0.03% ) and Rivian Automotive (RIVN -2.41% ) can issue over-the-air software updates to vehicles and collect user data on their drivers. That’s setting the stage for artificial intelligence to play a significant role in the future of transportation.
Against that backdrop, the race is on as EV companies rush to grab market share in a global market with nearly 300 million vehicles on the road in the United States alone. Will a much larger and more established Tesla continue generating great returns? Or is the up-and-coming Rivan the stock to own moving forward?
Here is what you need to know.
Tesla is the undisputed industry leader
On a run rate to deliver nearly 2 million vehicles in 2023, Tesla is the undisputed EV leader. Automotive factories must produce a ton of units to make money, and Tesla’s reached that critical mass, generating $5.7 billion in free cash flow on $86 billion in sales.
Tesla is betting on artificial intelligence, equipping its vehicles with autonomous driving hardware and software that it hopes will translate to a Robotaxi business as the self-driving technology matures. Elon Musk hopes to use this technology in other applications, like Tesla Bot, its long-term humanoid project.
Artificial intelligence must train on giant data sets, and Tesla has amassed a massive stockpile. It records information as customers drive Teslas on FSD mode (full self-driving), approximately 150 million cumulative miles to date. That’s an advantage that puts Tesla squarely in the lead in AI development among EV competitors, with some companies like Ford already backing away from pursuing full self-driving.
On the flip side, selling vehicles pays the bills, and Tesla’s profit margins are crumbling as it cuts prices to move units. Additionally, the stock already carries a $508 billion market cap, making it a fair question how much larger investors can expect Tesla to become moving forward. There is a lot of potential downside if Tesla falls short of its promises in the future.
Rivian also has its advantages
If Tesla is the safer choice, Rivian is the complete opposite of that. The company is much younger than Tesla, still in the early days of ramping up its production numbers, and Rivian is targeting 50,000 units in 2023, a fraction of what Tesla does in a quarter. As a result, Rivian is still burning a lot of cash, though it has almost $12 billion in cash on hand to fund the business in the near term.
While Tesla’s concentrated on the sedan and small SUV market, Rivian’s first products, the R1T truck and EDV van (built exclusively for Amazon), keep Rivian from a direct collision course with Tesla (though that could change with the Cybertruck coming out).
There’s also no doubt that Rivian has more potential upside for investment returns, because the stock is worth just $12 billion today. Becoming a $100 billion company, still a fraction of Tesla’s valuation, would give investors multi-bagger returns — much harder for Tesla to produce at its size today.
Rivian has all hands on deck with growing its production enough to turn profitable, so while it could develop potential AI applications in the future, it’s not an active focus for the company today. Its vehicles offer assisted driving features, but autonomous capabilities aren’t on the horizon yet. It’s also tricky being a highly unprofitable business heading into a potential recession. A tough economy could depress demand for Rivian’s vehicles, and make fundraising harder if it runs low on cash.
Which is the better investment?
Looking at each stock’s forward price-to-sales ratio (P/S), Tesla is trading at a premium to Rivian. It’s hard to argue that Tesla’s huge advantage in delivery volumes and profitability makes it a safer investment, and this market values safety right now. Still, what’s right for your portfolio could come down to personal preference — Rivian has a higher ceiling but a much lower floor.
Warren Buffett famously said that his No. 1 rule in investing is never to lose money. That sounds like sound advice given the economic uncertainty surrounding the markets today. Tesla’s strong fundamentals and massive lead over competitors make it the better investment until Rivian shows a more straightforward path to turning a profit.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Tesla. The Motley Fool has a disclosure policy.
Tesla vs Rivian: How the fresh EV startup compares to the electric-car giant
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- Tesla is facing competition from new and exciting startups.
- Rivian is one of the most successful electric vehicle startups in the US.
- The Tesla Model X and upcoming Cybertruck pickup will compete with Rivian’s R1T pickup and R1S SUV.
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For decades, a handful of Goliaths have dominated the auto industry. But the era of electrification has opened the door for smaller startups to enter the conversation.
California-based Rivian is one new firm competing with Tesla and gunning for a slice of the burgeoning electric-vehicle market.
I drove vehicles from both Rivian and Tesla to see how the up-and-comer compares to the EV industry leader.
What is Tesla?
Tesla birthed the EV market as we know it and remains the most successful seller of electric cars in the world. China’s BYD is right on its tail, but in the US no competitors come close.
The Tesla Model Y compact SUV is the world’s best selling vehicle. Its second most popular offering is the Model 3 sedan. The Elon Musk-led automaker also sells two bigger, higher-end models: the Model S sedan and Model X SUV (that’s the one with the wild, falcon-wing doors.)
What is Rivian?
Lots of EV startups have hit the scene trying to emulate Tesla’s gangbusters success. Only a couple have managed to build vehicles and ship them to customers at any sort of scale. One of those lucky few is Rivian.
The California-based company was founded in 2009 by RJ Scaringe, who remains its CEO. Along the way, it racked up major investments from Amazon, Cox Automotive, Ford, and other big backers.
In late 2021, it officially launched its first vehicle, the R1T pickup truck. It was the first electric pickup of the modern electric era, followed by offerings from Ford and GM. In mid-2022, it started selling the R1S, a big SUV based on the same platform as the R1T.
All of Rivian’s vehicles are built at its factory in Normal, Illinois. Rivian is working on a second factory in Georgia where it plans to manufacture its next generation of vehicles, which will be smaller and cheaper.
How do Tesla and Rivian’s vehicles compare?
While Tesla’s bread and butter is modestly sized sedans and SUVs, Rivian is catering to buyers who want a larger vehicle and better off-road capability. Rivian’s brand is all about getting outdoors, so its high-end vehicles are kind of like a cross between Tesla and Jeep.
I’ve driven both the R1T and R1S and found both incredibly impressive.
They’re cool-looking, extremely capable, and packed with thoughtful features. The R1T, for example, has an ingenious Gear Tunnel that lets you stash things between the pickup’s cab and bed. Both vehicles offer four motors, an adjustable-height suspension, and multiple drive modes that make crawling over the most treacherous obstacles a walk in the park.
The R1T is about the size of a Toyota Tacoma and costs $73,000 to start. The three-row R1S is roughly the size of a BMW X7 and starts at $78,000. Tesla’s Model X SUV costs $98,490 and up. Rivian should soon get another competitor in the form of the Tesla Cybertruck, which will supposedly hit streets this year.
Tesla doesn’t have the same sort of nature-loving ethos. Its cars are more about on-road performance, and they deliver that in spades, particularly if you choose a sportier model, liek the Tesla Model S Plaid.
Still, there’s some overlap between Tesla and Rivian’s vehicles.
Both brands embrace simplicity and technology in the Rivian and Tesla interior, which look nothing like what you’d get from a conventional automaker. Tesla was the first company to eliminate most physical buttons and use a big touchscreen instead, and Rivian followed suit.
Both interfaces feel snappy and modern, but both can be frustrating to use when you want to adjust a simple setting while driving. Both Teslas and Rivians require swiping the touchscreen to change the direction of the air vents, for example.
How do you buy a Tesla or a Rivian?
A perk of buying from either brand is seamless online ordering. Both reject traditional dealers and instead sell vehicles direct-to-consumer through their websites.
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