Rivian vs Tesla: Which EV Stock Is the Better Buy Right Now?

Did you know that the global electric vehicle (EV) market is estimated to be worth more than $1 trillion this year? That's according to projections from analysts and Fortune Business Insights. And despite the massive size of the market, they expect it will still more than double and be worth close to $2.2 trillion by 2034, which translates into a compounded annual growth rate of just under 10% over that stretch.

Two popular stocks that could benefit from these opportunities are Tesla (NASDAQ: TSLA), which is already a beast with a massive valuation, and Rivian Automotive (NASDAQ: RIVN), which recently launched a new, more affordable EV that it hopes will allow it to capture more market share.

Which EV stock is the better long-term buy?

Image source: Getty Images.

The case for Tesla

Over the years, Tesla has built up a strong brand in the EV market. Its name has become synonymous with EVs and, of course, its CEO, Elon Musk. The company has been facing headwinds due to growing competition, and thus its margins have been shrinking. However, it has an advantage over other smaller EV makers in that its operations are already profitable.

While its profits may be shrinking, many competitors would simply love to just be profitable. Last year, Tesla reported $3.8 billion in profit on revenue of just under $95 billion. Meanwhile, its vehicles remain in high demand, with Tesla reporting that for the second quarter, it made 480,126 deliveries, eclipsing analyst expectations of less than 407,000 by a wide margin.

Tesla's stock is down 9% this year, but with the company's CEO always focused on growth and the next phase of innovation, including robotics, Tesla can be one of the most exciting growth stocks to own over the long run. Although there have been bumps along the way, it has generated fantastic returns for long-term investors.

The case for Rivian

At around just $27 billion in market cap, Rivian is a far smaller company than Tesla, which is worth close to $1.6 trillion. Thus, there can be much more significant upside for investors here if the company proves there is strong demand for its vehicles.

In the second quarter, Rivian delivered 12,194 vehicles, which was higher than analyst projections of 11,000. But this number could be far higher in future quarters with its new, more modestly priced R2 SUV now available and early demand exceeding expectations. The company has raised its full-year delivery expectations, now projecting between 65,000 and 70,000 deliveries, up from the 62,000 to 67,000 it previously expected.

Last year, the company's revenue grew by more than 8% to $5.4 billion, and it reduced its net loss significantly, from $4.7 billion in the previous year to $3.6 billion. While it's still a sizable loss, the company is showing signs of progress. More importantly, from a cash flow perspective, it used up significantly less cash from its day-to-day operating activities: $779 million versus $1.7 billion a year ago.

It's a long road ahead for the company, but if it succeeds and is able to grow while becoming profitable, the gains for the stock could be significant.

Which stock is the better buy right now?

There is a risk with both of these stocks. Tesla is trading at an extremely high valuation, while Rivian's lack of profitability and positive cash flow are big concerns as well. However, Tesla is ultimately the safer stock to own due to its stronger financials. Rivian has a considerably more challenging road ahead as its gross margin was just 9% last year, and with it offering a lower-priced R2 model, it may be even more challenging for it to improve its margins in the near future.

Tesla is the better buy when compared to Rivian, but it may still be too risky for many investors.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.