Should I buy NIO stock, Rivian or Tesla shares?

This Fool takes a look at NIO, Rivian and Tesla to try and decide which company has the better outlook over the next few years.

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The global electric vehicle (EV) market is booming, and companies (and investors) are rushing to get in on the action. Investors are spoilt for choice when it comes to choosing EV investments. Across NIO (NYSE: NIO), Rivian (NASDAQ: RIVN), and Tesla (NASDAQ: TSLA), each business offers something different and exposure to varying parts of the global market. 

Of course, these are not the only companies in the sector, but I reckon they are some of the most promising. As such, I have been evaluating these opportunities to see which one deserves a place in my portfolio. And one company really stands out to me as having a brighter future than its peers. 

The global EV market 

According to analysts, 2021 was a “game-changing” year for global EV sales. In 2019, the number of light EVs globally was only 9% higher than 2018. However, in 2020, the market accelerated. Sales grew by 43% overall. Meanwhile, the global EV industry market share rose to a record 4.6% in 2020. 

The market continued to expand in 2021 too. While the final figures are still not available, projections suggest that 6.4m EVs will have been sold globally last year. That represents an increase of 98% year-on-year. 

As these vehicles capture an even larger market share, sales are only likely to continue. EVs now represent 14% of the new car market in Europe, up from 7% in 2020. 

Considering this opportunity, the outlook for NIO, Rivian and Tesla shares seems incredibly bright. But each of these organisations is targeting a different section of the market. Therefore, I think it is worth considering each company’s competitive advantages before making an investment decision. 

Three qualities

There are three different data points I will consider for each business. The first is the competitive advantage, followed by each company’s growth potential and, finally, the ability to hit targets. 

I think Tesla has the most substantial competitive advantage of the three. The organisation’s brand is virtually synonymous with EVs. Its brand dominates the space in Europe and the US, and it has a first-mover advantage over competitors such as NIO and Rivian. 

That said, NIO’s interchangeable battery system could give the company an edge over Tesla, specifically in the Chinese market. 

As a Chinese business, NIO could have the edge over its US-based peer in this market. Many Western businesses have struggled to break into China and compete with domestic corporations. Tesla is making progress, but there is no guarantee that the company will maintain its advantage when facing competitors like NIO in the region. 

As Rivian is still in the early stages of getting its product to market, I do not believe the company has much of a competitive advantage right now, especially compared to NIO and Tesla. 

All in all, I think Tesla wins this round. 

NIO stock growth potential 

When it comes to growth potential, I think Tesla shares once again have the edge. The company produces nearly 1m vehicles a year and plans to rapidly increase this target over the next decade

However, NIO also has big growth plans, and the domestic Chinese market is massive. Suppose it can capitalise on its position in the market and edge out Tesla. In that case, the corporation could outperform its peer, especially as the Western automotive markets are far more competitive. 

Over the next two years, as new manufacturing facilities open, the company is looking to ramp up production to 600,000 vehicles per annum. It is also planning to expand into other markets, mainly Europe, to increase sales. 

Rivian wants to produce and sell 1m EVs per year by the end of the decade. It produced 1,015 in 2021. These figures suggest the company is still years behind its larger peers. 

Once again, I think Tesla wins this round, considering its existing output and delivery volumes. 

Growth ability

Of course, targets are meaningless if a company does not have the resources to hit goals. Over the past year or so, investors have been more than happy to throw money at EV producers. Unfortunately, it is unlikely this trend will last forever. These companies will need to prove that they are self-sustaining and, if they do not, they may struggle to raise additional funding. 

Tesla is by far the closest to being a sustainable business. It has reported a profit for the last few quarters. Although it will need significant capital investment to fund its growth plans in the years ahead, the market currently seems more than happy to provide this capital. 

NIO’s ability to raise funds is not as clear cut. The company has raised money from investors over the past year, but it has had to pay a high price. This could be a sign the market does not trust the outlook for NIO stock as much as Tesla. 

As a newer business, Rivian’s potential is difficult to calculate. Shares in the corporation have fallen rapidly since its IPO, suggesting the market is not entirely convinced in its strategy. However, this could be a side effect of the general shift in sentiment away from growth stocks over the past few months. 

Tesla shares have potential

Considering all of the above, Tesla comes out on top. Compared to NIO stock and Rivian, the company has a more substantial competitive advantage, a clearer growth outlook, and more resources to pursue its ambitions. 

With that being the case, I would be happy to buy this enterprise for my portfolio and avoid the other two EV producers for the time being. 

Still, I could be wrong in my evaluation. NIO could outperform its US-based peer if growth in the Chinese market exceeds expectations. Tesla may also struggle if legacy car manufacturers accelerate their attack on the EV market, which has been building for some time. 

Competition is the biggest threat all three companies face. This is something I will be keeping a close eye on as we advance. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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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