Is Rivian The Next Tesla?

Tesla wasn't the first company to make an electric vehicle (EV), but it has helped revolutionize the EV segment of the auto industry, made EVs far more mainstream than they were before, and generated outstanding returns for investors who have held its shares for a long time. However, many companies are now looking to eat Tesla's lunch. One of them, Rivian (NASDAQ: RIVN), is adopting a strategy that resembles that of its much larger peer. Could Rivian follow in Tesla's footsteps and also deliver market-beating returns over the next decade?

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Some similarities with Tesla

Like Tesla and unlike most legacy automakers, Rivian is a vertically integrated EV company, a strategy that comes with high upfront costs but could eventually lead to stronger margins than industry averages, as (or if) the company achieves significant economies of scale. Rivian also sells its vehicles directly to customers without relying on dealerships, another core aspect of Tesla's business. Rivian's model lineup has overlapped with some of Tesla's lower-volume models, such as the Model X and the Cybertruck. Here's the good news.

Rivian is launching the R2 this year (customer deliveries will start in the second quarter), which will compete directly with Tesla's Y, one of its best-selling models. Rivian's portfolio also includes electric delivery vans, which it has notably sold to Amazon. As part of a partnership between the two, Amazon will buy 100,000 delivery vans from Rivian by 2030 -- as of last year, it already had over 30,000.

Looking at the numbers

Rivian's financial results are improving. Last year, its revenue increased by 8% year over year to $5.4 billion -- despite a somewhat challenging EV market, in part due to the expiration of EV government tax incentives in the U.S. toward the end of 2025. The company's automotive revenue declined year over year, but software and services sales soared, more than offsetting the decline. Further, with the company's goal of starting customer deliveries of R2 Models in the second quarter, Rivian expects deliveries between 62,000 to 67,000 in 2026, representing an increase of almost 53% (at the midpoint) compared to the previous fiscal year.

Then there is Rivian's deal with Uber Technologies. The ride-hailing giant committed to purchase 10,000 fully autonomous R2 models from Rivian with the option to buy up to 40,000 more in 2030, in exchange for an investment of up to $1.25 billion (including an upfront payment of $300 million). These will be deployed as autonomous robotaxis available exclusively on Uber's platform in various cities starting in 2028. Uber is requesting level 4 fully autonomous vehicles, a technology Rivian has yet to achieve -- the plan is to ramp up its efforts to get there.

And to that end, the company no longer plans to achieve profitability on an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) basis in 2027, due to the investment required to accelerate its path to full autonomy.

Is Rivian stock a buy?

Rivian could run into several issues, including the inability to reach its autonomy milestone in time to keep its deal with Uber intact, which would sink the stock price, especially since it had to delay EBITDA profitability to fund the required R&D investment to reach level 4 autonomy. Meanwhile, even with growing services revenue, the company will have to compete fiercely with Tesla's more established Model Y to gain enough market share to keep its automotive segment's revenue afloat.

Here, too, the outcome is highly uncertain. Meanwhile, Rivian remains unprofitable and will likely be so for a few more years. The stock could soar if it can establish itself as a leader in the midsize SUV EV market, where it will soon compete with the R2, and it could also cement itself as a leading fully autonomous vehicle maker and attract partnerships similar to the one it has with Uber, if it can meet its autonomy goals. But the stock carries above-average risk and isn't for investors uncomfortable with heightened volatility.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.