This Stock Is Crushing Both Lucid and Rivian in 1 Crucial Way

As far as young U.S. electric vehicle (EV) makers go, Lucid Group (NASDAQ: LCID) and Rivian Automotive (NASDAQ: RIVN) have managed to separate themselves from the smaller niche players, or worse, the few that have already closed their doors. One could easily argue that Rivian has even separated itself from Lucid in a positive manner.

But there's another stock, Nio (NYSE: NIO), that often flies under the radar because it was born in China, and in one crucial way it has been crushing Lucid and Rivian recently.

The bumpy road

It's not an easy life for young EV automakers, which face costly technology such as batteries, largely unprofitable early-stage scaling, and a volatile EV industry that has been impacted by changes in demand due to untimely policy, reduced tax incentives, and even unexpected tariffs.

Despite all of those headwinds, Rivian has taken a large step forward to separate itself in a positive way from rival Lucid in its ability to generate gross profits. These young EV makers being able to generate gross profits, and more importantly, sustainable gross profitability, is a crucial step to proving to investors they can become a viable long-term investment that can one day reward investors.

LCID Gross Profit (Quarterly) data by YCharts

As you can see, despite starting from a worse position than its rival, Rivian has made consistent progress on gross profitability since the beginning of 2023, while Lucid's gross profitability has languished due to multiple speed bumps.

There are two primary driving forces for Rivian's consistent improvement. One is drastically improved unit economics as the young EV maker has intensely reduced costs, expensive wiring, and the number of parts and sensors, among many other changes. That's expected to continue with the R2, which is targeting about half the costs of the R1.

Image source: Rivian.

A second driving force was Rivian's joint venture with Volkswagen, which gave the company the ability to draw non-dilutive capital, split development costs, and sell/license its valuable software stack to its German partner, which has essentially given up on its in-house software division. These software margins are much higher than those for Rivian's hardware manufacturing and helped offset early-stage, less-profitable scaling.

Rivian's improvement has been impressive and consistent, but many investors overlook another EV stock that has taken a leap ahead of even Rivian.

Nio is crushing Rivian?

Nio has witnessed an uptick in its gross profitability, driven by multiple factors, including vehicle deliveries nearly doubling in the first quarter compared to the prior year. Investors have Nio sub-brands Onvo and Firefly to thank for this, as they continue to gain traction.

Going hand in hand with Nio's rise in deliveries are its vehicle and gross margins. During the first quarter, Nio's gross profit topped $700 million, representing a staggering 428.4% increase from the prior year. First-quarter gross margin checked in at 19%, compared to 7.6% during the prior year. Vehicle margin also made a similar jump to 18.8% during the first quarter, compared to 10.2% a year ago.

LCID Gross Profit (Quarterly) data by YCharts

What it all means

While Rivian has made substantial improvements to boost its gross profitability, it still lacks the growing scale and sales volume that Nio is enjoying. That's the next step for Rivian, and a step it is expected to take with the R2 opening the door to mass-market consumers.

It's natural for U.S.-based retail investors to gravitate toward companies that were founded and operate in the U.S. market, and that's why Rivian and Lucid are more well known than Nio. However, amid the many young EV companies that are struggling globally through many different headwinds and regional speed bumps, Nio has consistently impressed with its ability to navigate a challenging domestic market and a brutal price war, expand its sales and scale, and improve margins and gross profitability.

Rivian has achieved some impressive feats over the past year or two, but when it comes to gross profitability and proving to investors it can be a viable long-term investment, Nio is crushing it -- and investors should take note.

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