Tesla has proven to be one of the best investments of the past ten years. In that period, the pioneering electric vehicle (EV) manufacturer’s sales have increased by almost 2,900%, while its share price has risen by almost 1,400%, significantly enriching early investors.
But the electric vehicle industry is still in its infancy, so it’s worth exploring current opportunities. For those looking to invest in the next Tesla, there’s one emerging electric car stock to consider right now: Rivian automotive sector (NASDAQ: RIVN). This is why.
More risk can bring more reward
You are probably well aware of the trade-off between risk and reward. But in practice this trade-off is more difficult to determine. After all, there is nothing that guarantees you a higher potential payout if you take on additional risk. So it’s important to stack the odds in your favor. That’s exactly what investors are currently getting with Rivian Automotive shares.
Let’s turn back time and look at what Tesla was up to almost a decade ago, when its sales were only about $5 billion. At the time, the company only had two luxury models for sale: the Roadster and the Model S. The first crossover, the Model wary that Tesla would ever be able to crack the mass market in a major way.
In 2014, Tesla shares were about ten times more expensive than sales. In 2016, that valuation fell to eight times turnover. And by 2020, Tesla’s stock was worth less than twice its sales. CEO Elon Musk would later reveal that the company was “about a month” away from bankruptcy.
Would you have invested in Tesla? Without knowing the future, most investors would have stayed far away. Still, this was one of the best times in Tesla’s history to jump in. As sales of its mass-market vehicles – the Model Y and Model 3 – began to gain momentum, Tesla’s revenue more than tripled from $30 billion between 2020 and 2024. to more than $90 billion. The shares have increased in value by more than 1,000% in the past five years thanks to the success of these two vehicles.
Right now, Rivian is poised to follow the same trajectory. Earlier this year it announced three new mass-market models: the R2, R3 and R3X. Similar to what Tesla used to offer, Rivian currently only has a few high-end luxury vehicles for sale, the R1S and R1T, both of which cost around $100,000. The R2, R3 and R3X are expected to cost under $50,000, similar to the Model Y and Model 3.
If these new models have the success that Tesla’s mass-market vehicles had, expect Rivian’s sales base to soar. There is only one problem: delivery of these vehicles is not expected until 2026 at the earliest. Some versions may not come to market until 2027 or 2028.
Suffice it to say, the market remains skeptical, just as it was before Tesla’s big sales boost. Rivian shares are now priced below twice sales – a 75% valuation discount to Tesla – despite trading at 0.25% premium early in its trading history. A lot could happen in the coming years, and Rivian will need billions in new capital to get where it wants to be.
But if you’re willing to take this extra risk and remain patient, there could be a big reward in just a few years.
Use this strategy to make profits with Rivian stock
Since there won’t be many hard catalysts for Rivian until its mass-market vehicles hit the market, you can expect the stock price to be highly volatile, in response to small shifts in investor sentiment, and of course to broader overall market swings.
For this reason, the best strategy for investing in Rivian stock will likely use dollar-cost averaging. For example, instead of putting $1,000 to work right away, you might want to split that amount into 10 monthly investments of $100. That way, your portfolio will benefit from any temporary price drops.
But even with dollar-cost averaging, the biggest skill you need to make money with Rivian stock is patience. The market is unwilling to value the company higher until results are seen. But that hesitation is what creates today’s buying opportunities. You just have to remain patient and be willing to ride the wave or even take advantage of the stock price volatility.
Should You Invest $1,000 in Rivian Automotive Now?
Consider the following before purchasing shares in Rivian Automotive:
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
1 No-Brainer Electric Vehicle (EV) Stock to Buy Now (Hint: It’s Not Tesla) was originally published by The Motley Fool
