Better EV Stock: Rivian vs. Tesla

The electric vehicle market is getting crowded as traditional automakers release new EV models and new start-ups expand their position in the market. The result has been a rise in EV sales, which jumped 7% in the U.S. last year.

But finding a long-term winner among EV stocks isn't exactly easy right now. The share prices of many companies have fallen over the past few years as investors have tried to figure out how quickly EVs might replace traditional autos.

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That's left some people wondering whether established EV maker Tesla (NASDAQ: TSLA) or start-up Rivian (NASDAQ: RIVN) is a better buy. Here's the case for each.

Image source: Getty Images.

The case for Tesla

The case for Tesla is pretty straightforward, considering the automaker is a leader in EVs. Tesla has 18% of the battery electric vehicle market, though competition among Chinese automakers and EV start-ups is rising.

Tesla's early lead in electric vehicle manufacturing continues to pay off, allowing it to weather rising material costs, component shortages, and other hiccups that derail smaller EV companies.

There are legitimate criticisms of Tesla, including that some of its model lineup is a little long in the tooth and a promised cheaper EV model has yet to materialize. Tesla CEO Elon Musk has said that a cheaper model could launch later this year, but details are sparse.

However, Tesla also has new growth opportunities in the pipeline. Musk recently debuted the company's Robotaxi, which will be part of an upcoming Tesla ride-hailing service. Some estimates put the global autonomous ride-hailing market at $480 billion by 2032, and big investments from Alphabet's Waymo and Nvidia indicate this space is heating up.

It's worth pointing out that Tesla recently reported disappointing fourth-quarter results. Its total sales rose just 2% to $25.7 billion, while automotive revenue declined 8% to $19.8 billion. Tesla said reduced average selling prices for its Model S, Model X, Model 3, and Model Y resulted in lower revenue in the quarter.

The case for Rivian

Rivian makes impressive EVs that have caught the attention of automakers and customers. The company's brand has topped Consumer Reports' list for owner satisfaction -- among all automakers, not just electric vehicle companies -- and both Volkswagen and Amazon have invested billions into Rivian.

Rivian's vehicle production fell 13.5% in 2024 to 49,476 vehicles, and deliveries rose by 3% to 51,579.But management recently said that some of the component shortages that limited production last year have been fixed.

Rivian expects its first gross profit in the fourth quarter (which will be reported on Feb. 20). Rivian cut material costs for its lineup last year and re-engineered some of its production to lower expenses.

There's no denying that Rivian has a long road ahead. The company had a net loss of $1.1 billion in the third quarter, and production needs to ramp up to narrow the gap. But there are also bright spots for the company.

Rivian will launch its new, smaller R2 SUV in the first half of 2026, and a small R3 crossover vehicle is also on the way. The R2 will start at $45,000, much cheaper than the current starting price for its R1S, which is $75,900. This should expand Rivian's customer base, attracting far more customers with smaller budgets.

The company also recently started a joint venture with Volkswagen, allowing the established automaker to use electric architecture and in-vehicle technology for future vehicles. Rivian will receive up to $5.8 billion in investments, equity, and loans.

The partnership indicates that Rivian is more than just another EV start-up trying to carve out its niche; it's also attracting sizable investments from established automakers that see its potential.

The better EV stock depends on your goals

These two companies are in different chapters of their EV story. Tesla is well-established, profitable, and ahead of many competitors. Rivian, on the other hand, is just getting started. It's difficult to compare them directly.

I think there's a case for owning both, but they each require some compromises. For example, Tesla's share price gain of 100% over the past 12 months (as of this writing) means the stock's forward price-to-earnings ratio is a very pricey 115.

Meanwhile, Rivian is a very speculative EV investment as the company tries to increase production and fend off other EV start-ups. The company's success is anything but guaranteed, yet I think its strong brand, management's focus on cutting costs, and partnerships make for a compelling reason to own its stock (which I do).

In other words, if you're OK with paying a premium for an EV stock, then choose Tesla. But if you'd rather invest in an EV start-up with the potential to carve its own path in the electric vehicle market, Rivian is a great option.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has positions in Rivian Automotive. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.