Why I think Rivian shares are a better buy than Tesla stock right now

Jon Smith explains why even though Rivian shares could be seen as overbought already, he sees value when comparing it to Tesla.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Last week, the much anticipated Rivian (NASDAQ:RIVN) IPO occurred. It floated with a price of $78, but quickly saw share price gains as investors bought the stock. Rivian shares now trade at $159, up another 6.5% today. Even though the company is new, if I want to get exposure to the electric vehicle (EV) space, I’d prefer to buy Rivian than Tesla shares. Here’s why.

A way to invest in the sector

I recently wrote about how I thought Tesla shares were overvalued as it passed $1,000. With a valuation tipping over $1trn and a high price-to-earnings ratio, I struggled to see much upside. I do believe in the sector and think that EVs are the future. But I was (and still am) cautious about buying Tesla shares.

Along came the Rivian IPO. The company was formed back in 2009 and has gained backing from big companies along the way. For example, in 2019 both Amazon and Ford invested heavily. Amazon later ordered 100,000 EVs from the business. 

The firm has gained billions in private funding over the years, but as a retail investor I couldn’t get involved. Now that the stock is public, I can. In fact, I think that there will be many others who are in the same position as me — looking to invest in the EV sector but thinking Tesla is overvalued. Given the limited options of public EV manufacturers, this could give Rivian shares a boost. 

Finding value in Rivian shares

Of course, just because I’d buy Rivian over Tesla doesn’t mean that Rivian is a sure winner. The finances and fundamentals highlight that this is a very risky stock. For a start, until the beginning of Q3 the company had no significant revenue to record. The Rivian R1T (a pick up truck), only started to roll-off the production lines in September. There’s a long way to go to hit the planned 150,000 production numbers forecast by the end of 2023.

The net loss for the first half of the year was just under $1bn. Clearly, with trucks only just leaving the production line, a loss is likely to be posted for the full year, with high costs and low revenue.

But what about the fundamental value? Rivian’s share price gives it a value of $142bn, making it worth more than Volkswagen. But it still has some way to go to overtake Toyota (around $300bn) and of course Tesla.

Given that the other companies mentioned have a long history of hitting production numbers and generating profits, I can see why Rivian shares are a risky bet. Yet really, I should be looking at this growth share through the lens of the next few years. If the company can replicate some of what Tesla has done, then the valuation looks fair to me.

My verdict

Based on the current situation of the EV market, I’m considering buying Rivian shares now. Although the valuation and finances aren’t what a traditional investor would be happy with, this is a different ball game. Especially when comparing the company to Tesla, I know where I’d rather invest right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Jon Smith has no position in any share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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