Better EV Stock: Rivian vs. Tesla

Rivian (NASDAQ: RIVN) and Tesla (NASDAQ: TSLA) are two critical players in the electric vehicle market, with Tesla the leading EV maker in the U.S. and Rivian carving out a niche in the adventure EV market with its pickup trucks and SUVs.

For years, there was no comparison between Tesla and any American EV start-up, but the company's current struggles have led some investors to consider alternative plays. While the electric vehicle industry has a long road ahead, I think investing in Rivian could be a better choice right now. Here's why.

Image source: Rivian.

Tesla is losing steam

Tesla is by no means finished in the EV market, but the benefits that came from its early lead in electric vehicles are certainly starting to fade.

For one, Tesla faces immense competitive pressure, both from Chinese automakers abroad and at home. The company continues to lose market share around the world and, in the U.S., Tesla's vehicle sales reached a nearly four-year low in November.

Moreover, Tesla's financial picture is no longer as strong as it once was. The company's revenue rose just 12% in the third quarter to $28.1 billion, largely due to some customers rushing to purchase a Tesla before the EV tax credits expired. Even with the temporary bump, Tesla's generally accepted accounting principles (GAAP) net income fell 37% from the year-ago quarter to $1.4 billion.

That decline came as Tesla's operating expenses rose 50% to $3.4 billion in the quarter, a significant increase for such an established company. Tesla CEO Elon Musk has set his sights on autonomy and robotics as the future of the company, and that's starting to fuel more spending.

I don't think it's misguided for Tesla to incorporate these goals into its future plans. After all, automated vehicles (AVs) could be worth an estimated $1.4 trillion by 2040, and humanoid robots may be worth an estimated $5 trillion by 2050. But they're also unproven markets that will take billions of dollars to develop over the coming years.

Add all of this up, and Tesla is spending more at the same time its lead in EVs is tumbling -- a bad combination.

Rivian has big ambitions, but success isn't guaranteed

Investors looking for a sure bet won't find it in Rivian, I'm sorry to say. The company, like Tesla, faces rising competition, and unlike Tesla, it isn't profitable. Rivian reported a net loss of $1.2 billion in the third quarter, with operating expenses increasing nearly 30% to $1 billion.

But one thing I think Rivian has going for is that it appears to have a solid plan for attracting customers with smaller budgets. The company's smaller R2 SUV will go on sale next year, starting at just $45,000. And in 2027, it plans to launch an even cheaper R3, priced around $40,000.

If Rivian can hold to this price tag, the R2 will be $5,000 cheaper than the average new car price -- traditional combustion engine vehicles included -- and the R3 will be $10,000 cheaper. The one nagging reason why car buyers avoid EVs is because of their cost, so if Rivian can continue to lower its prices it could potentially attract more customers.

Moreover, producing the R2 and R3 will help the company lower expenses by spreading manufacturing and production costs across more vehicles in its model lineup, and potentially increase sales by widening its customer base.

Rivian is the better EV stock right now

I think investors will have to wait several years before Rivian stock delivers impressive returns, and there's certainly no guarantee of success. However, between Tesla and Rivian, I think Rivian has more opportunity to capture a specific niche in the EV market and build on its current brand strength, while Tesla's rising costs for autonomous vehicles and robotics could hurt its ability to grow its EV business.

Chris Neiger has positions in Rivian Automotive. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.