Better Stock: Lucid vs. Rivian (Hint: It's All About Shareholder Dilution)

The U.S. transition to electric vehicles (EVs) hasn't been a smooth ride thus far. Following the end of the federal $7,500 EV tax credit and a weakening of fuel economy regulations, young EV makers have had a tough time generating as much demand as anticipated only a few years ago.

That said, the transition will go on, and will eventually accelerate, and that leaves investors who want to buy into this EV future a few options.

On the riskier end of the scale, investors might be comparing Rivian Automotive (NASDAQ: RIVN) and Lucid Group (NASDAQ: LCID). Here's one major factor to remember: shareholder dilution.

Why dilution matters

It's worth repeating, though most investors are aware: Shareholder dilution is simply the aftermath of when a company creates new shares of a stock for capital; as the pool of shares grows larger, an individual's stake gets less valuable. This is hugely important for investors buying into young companies that are capital-intensive, as they could need multiple capital raises that could be dilutive. That's one of the biggest differences between Lucid and Rivian right now, and it's more important than ever.

LCID Shares Outstanding (Quarterly) data by YCharts

Let's start from the beginning, because it matters. Rivian chose a standard initial public offering (IPO), and the timing was nearly perfect. The market was giving massive valuations, and Rivian sold 153 million shares at $78 per share, raising nearly $14 billion (after underwriters fully exercised their options) in one of the largest debuts in 2021.

That gave Rivian a large cash cushion to fund investments and expenditures without needing to raise additional capital nearly as soon as Lucid, which chose to go public through a special purpose acquisition company (SPAC) merger. While Lucid received a solid valuation initially, it received a much smaller cash infusion of only about $4.4 billion.

Lucid ended the second quarter of 2026 with $3 billion in total liquidity, but its cash and cash equivalents were a lesser $732 million. Management expects that liquidity to last well into 2027, but already, analysts are predicting capital raises will be necessary and could be very shareholder dilutive. Lucid is working to curb its cash burn and is aiming to generate $1.4 billion in cash-flow improvements, but even that is likely just buying time until the next selling of shares or infusion from Saudi Arabia's Public Investment Fund, which already owns a massive chunk of the young EV maker.

Rivian, on the flip side, actually has better liquidity than it appears. Rivian ended the second quarter with $5.3 billion in cash and cash equivalents, but including its credit facility, its total liquidity reached about $5.8 billion. Following the second quarter, Rivian announced one of its rare capital raises and added about $1.3 billion in net proceeds, lifting its liquidity to almost $7.2 billion.

But wait, there's more. Thanks to Rivian's partnership with Volkswagen, the former expects a non-recourse loan capital and milestone investments to add another $1.4 billion, and Uber Technologies is expected to invest another $250 million in 2026 and over $700 million in subsequent years.

Lastly, Rivian's $4.5 billion Department of Energy loan is earmarked to help fund the company's second manufacturing plant in Georgia. All in all, investors have transparency of about $14 billion in Rivian's expected liquidity. That is a vastly superior position compared to Lucid, and gives investors confidence that there will be less shareholder dilution in the near term.

Rivian R2. Image source: Rivian.

What it all means

Lucid makes some of the world's most advanced EVs, and will continue to do so. However, Lucid has also been troubled with recalls, production hiccups, delays, and supplier issues, and has struggled to scale fast enough to lower overhead and reduce costs. Those issues have hindered Lucid's ability to improve its gross margin consistently, as rival Rivian has already done.

Investors comparing these two young EV makers must remember shareholder dilution, because $1 invested in Rivian right now is far more likely to hold its value going forward. Lucid investors likely can't say the same.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.