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While the electric vehicle (EV) bubble of 2020-2021 has burst and many startup EV companies are fighting for survival, Rivian (RIVN) and Lucid Motors (LCID) are among the most well-funded names. Which of these is a better EV stock to buy now?
Both Lucid Motors and Rivian Went Public in 2021
While Lucid Motors opted for a special purpose acquisition company (SPAC) merger, Rivian went public through the traditional IPO route in November.
Both companies had several laurels to their name when they went public. Lucid Motors was the biggest SPAC merger until then and Churchill Capital IV stock soared 550% on rumors that it would merge with Lucid Motors. While there was an apparent SPAC bubble in 2021, the stock rising that high on merger rumors showed the market's enthusiasm toward Lucid Motors.
Rivian raised $12 billion from the mammoth IPO which was the biggest since Facebook (now Meta Platforms) (META) and the startup EV company's valuation went past $150 billion at the peak. Rivian’s IPO coincided with the peak in EV companies and Tesla’s (TSLA) market cap hit an all-time high of $1.2 trillion soon after.
Here is some price information and technical analysis of these 3 EV companies:
Another similarity between Rivian and Lucid Motors is that, unlike many other struggling startup companies, they are backed by institutions with deep pockets. While Saudi Arabia’s Public Investment Fund (PIF) is Lucid Motors’ biggest stockholder, Amazon (AMZN) holds the majority of the stake in Rivian. Incidentally, Ford (F) also held a double-digit stake in Rivian but the legacy automaker has since sold most of the shares.
Also, both Amazon and Saudi Arabia have the option to buy up to 100,000 vehicles from Rivian and Lucid Motors respectively. Both companies have outlined massive plans to scale up production and while Rivian is targeting a 10% share of the US EV market by 2030, at the time of its merger in 2021 Lucid Motors said that it expects its production to rise above half a million units in 2030 which would mean a global market share of almost 4%.
Rivian and Lucid Motors Face Multiple Headwinds
Both Rivian and Lucid Motors face multiple headwinds – some of which happen to be similar. Both companies disappointed markets with their 2022 deliveries and are burning a lot of cash. The EV price war hasn’t helped matters and Lucid Motors had to offer a $7,500 credit to buyers as its models were not eligible for the $7,500 EV tax credit in the US.
Meanwhile, Rivian and Lucid Motors have taken different paths when it comes to product portfolios. Lucid Motors sells luxury Air sedans whose range is even higher than Tesla cars, while Rivian sells the R1S SUV and the R1T pickup truck. However, while Lucid Motors expects to produce only about 10,000 vehicles in 2023, Rivian is targeting a production of 50,000 vehicles in the year, and looking at the performance in the first half, I believe the company should meet or exceed the targets.
The EV Industry Faces Its “Moment of Truth”
The EV industry is facing its proverbial “moment of truth” and multiple startup EV companies have gone bankrupt – with Lordstown Motors (RIDEQ) being the most recent entrant in the list.
The EV industry is facing multiple headwinds which include: rising competition and the price war, the perennial cash burn, and production and supply chain bottlenecks. These woes are further compounded by the tight financial market conditions after Fed’s multiple rate hikes. In my view, many more startup EV companies might go bust by the end of this decade and only those with a compelling product portfolio and strong balance sheet would be able to survive.
Both Rivian and Lucid Motors have strong balance sheets. Rivian had almost $12 billion of cash and cash equivalents at the end of March and the company previously said that the cash pile is enough to fund its operations until 2025.
Lucid Motors on the other hand had $3.4 billion cash at the end of March which it said would fund the company at least until the second quarter of 2024. The company’s cash pile has risen further since then as it raised another $3 billion in May – including $1.8 billion from PIF.
Both Rivian and Lucid Motors offer Compelling Products
Both Rivian and Lucid Motors offer compelling products and the former’s R1T pickup won MotorTrend's prestigious Truck of the Year 2022 award. MotorTrend was all praise for the model and said “Rivian re-examined what a modern pickup could be and the result is the most remarkable truck MotorTrend has ever driven, making it arguably the worthiest recipient of the “Golden Calipers” in recent history.”
Similarly, MotorTrend awarded the Car of the Year 2022 award to Lucid Air and said “The win affirms Lucid Air as the new EV benchmark, with the most advanced electric powertrain available today—technology wholly designed, developed, and manufactured in-house.”
Lucid Air has a rating of 9.1 on MotorTrend which again looks good even as there have been some instances where both Lucid Motors and Rivian owners have complained of quality on online forums.
In what is a feather in the cap for Lucid Motors, luxury carmaker Aston Martin has partnered with the company to buy electric motors and batteries – providing credence to Lucid Motors’ claim that it offers a world-class product and just needs to market it better to increase the sales.
Why Rivian Looks a Better Buy as Compared to Lucid Motors
Lucid Motors seems to have a “Saudi backstop” as the kingdom has not only poured billions into its cash-guzzling operations but was also rumored to take it private.
In my view, Rivian looks like a better stock to buy as compared to Lucid Motors for three main reasons:
- Firstly, in their brief history, Rivian has fared better on execution as compared to Lucid Motors and expects to become gross profit positive in 2024
- Secondly, Rivian’s current product lineup and the upcoming R2 compact SUV place it on a strong footing as SUVs and pickup trucks are the hottest sections of the US automotive market.
- Finally, from a valuation perspective, Rivian trades at a price-to-sales multiple of 13.9x which is less than the 22.4x that Lucid Motors trades at.
Wall Street analysts' currently rate Rivian's stock a Moderate Buy:
Of the 18 analysts that cover RIVN, 9 rate it a Strong Buy, 2 a Moderate Buy, and 7 a Hold.
Overall, at current prices, Rivian seems to be offering a better value for money, in my opinion. And while the stock has soared in the the last month, I believe it still has room to run higher in the long-term.
On the date of publication, Mohit Oberoi had a position in: RIVN , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
