Despite the volatility in the headlines, the electric vehicle (EV) industry has seen a consistent upward trend in recent years. Today, 7.8% of vehicles sold in the US are electric. That’s up from just 3.3% at the start of 2022. There have been declines along the way – including a fairly steep decline in the first quarter of 2021 – but the overall trajectory is undeniably positive, with most long-term forecasts calling for Demand for electric vehicles will steadily increase over the next decade and beyond.
While the industry as a whole remains healthy from a sales perspective, the fate of individual EV stocks is another matter. Some EV stocks now have valuations of more than $1 trillion, with patient investors making huge long-term gains. However, other EV manufacturers are now on the brink of bankruptcy.
Do you want to invest profitably in EV shares? The two investments below are all you need.
When it comes to electric car stocks, none can match their size Tesla (NASDAQ: TSLA). And in terms of financial firepower, Tesla is king. And that’s a huge advantage when it comes to competing in the long-term growth market. This upside could strengthen Tesla’s stock the EV stocks for the coming years.
From Fisker to Lordstown Motors, countless electric car startups have gone bankrupt over the years. You can argue that these companies failed because they were too early. Or maybe they botched their first vehicle launch. Or it’s possible that their particular battery technology just wasn’t a good fit for what the future demanded. All of these things can apply to any business. But the biggest reason dozens of EV manufacturers have gone under in recent decades is because they ran out of money.
Tesla was no exception to the rule. According to Musk, the company is only “months away” from bankruptcy on several occasions. And it makes sense that money is such an important factor when it comes to being a successful car manufacturer. Designing, building, marketing and delivering any car or truck requires billions in capital. If a mistake is made, it could easily cost hundreds of millions of dollars. Furthermore, it can take years or even ten years to get a car from the idea stage to production. Start-ups rarely get such a high level of capital and runway.
Now valued at $1.5 trillion, with shares trading at 17 times sales, there’s no doubt that Tesla stock is expensive. But if you want to bet on EVs taking over the world, it’s wise to start with the company best positioned to make that takeover. Even if $200 can’t buy you an entire share of Tesla, the opportunity to own fractional shares is a top bet.
With a market cap of $1.5 trillion, Tesla’s long-term upside potential may be limited. Rivian automotive sector (NASDAQ: RIVN)a rival EV maker, is in the opposite situation. This company has a market capitalization of only $16 billion. There are more risks to this story, but if the company can execute on Tesla and follow in Tesla’s footsteps, it’s not hard to see Rivian stock having long-term upside potential of 1,000% or more.
From a financial perspective, Rivian’s resources pale in comparison to Tesla’s. Rivian, for example, has about $6.7 billion in cash on its balance sheet and has yet to post a profit in its history. Tesla, meanwhile, is profitable with more than $30 billion in cash, not to mention its ability to raise tens of billions in additional capital at any time through additional stock sales.
While Rivian doesn’t have the financial resources of Tesla, it has something growth investors crave: massive upside potential. Its market cap is only about $16 billion – 99% smaller than Tesla’s. If the company can execute on this, it can arguably replicate Tesla’s incredible rise. By 2026, the company is expected to deliver three mass-market vehicles: the R2, R3 and R3X. When Tesla first launched its mass-market vehicles – the Model 3 and Model Y – sales and stock valuation soared.
There are plenty of risks associated with investing in a smaller EV manufacturer like Rivian. But by splitting your EV portfolio evenly between both Tesla and Rivian, you have essentially diversified your portfolio across both the current market leader and potentially the next market leader years later.
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*Stock Advisor returns December 16, 2024
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.
2 No-Brainer Electric Car Stocks to Buy Right Now with $200 was originally published by The Motley Fool
