In the highly competitive electric vehicle (EV) market, major players like Tesla (TSLA), Rivian Automotive (RIVN), and Lucid Group (LCID) have faced significant headwinds, with demand falling short of expectations. In this article, I’ll use the TipRanks Stock Comparison Tool to explain why I’m bullish on TSLA and RIVN, and pessimistic on LCID. I’ll also outline why I consider Tesla to be the better pick of the three automakers.
Despite stretched valuations, I’m bullish on Tesla. The company’s shares currently trade at a forward P/E ratio of 97 times forward earnings estimates, which is about 15% below its five-year average. This is largely due to a substantial drop of over 40% in the stock price since its peak in 2021, driven by weaker-than-expected demand for electric vehicles and increased competition. Still, Tesla remains the best-selling electric vehicle manufacturer globally.
Tesla had targeted 50% growth in vehicle sales and production this year, but instead saw its revenue decline. In Q2, total auto sales were $19.8 billion, down 7% from a year ago. Tesla’s quarterly production and deliveries figures for July showed 443,956 vehicle deliveries, down about 5% from a year earlier.
On the positive side, Q2 saw strong operating performance, with cash from operations increasing 18% year-on-year to $3.61 billion and free cash flow of $1.34 billion. This marks a recovery from Q1 this year, when cash from operations fell 90% to $242 million and free cash flow fell to negative $2.5 billion.
Is TSLA a buy, hold or sell?
My bullish stance on Tesla is not based on recent results, but on its ambitious growth expectations. Tesla’s future is increasingly tied to artificial intelligence (AI), Robotaxis and robotics. The company is expected to unveil its highly anticipated Robotaxi on October 10, which could be a major catalyst for the stock.
While some investors may not see Tesla as a major AI player, its large installed base and significant involvement in AI are notable. Dan Ives, a tech analyst at Wedbush Securities, argues that Tesla is the most undervalued AI company. He believes Tesla can become a trillion-dollar company if it stabilizes demand and improves its pricing model.
Currently, Wall Street’s consensus on TSLA stock is a Hold. This is based on 12 Buy, 16 Hold, and eight Sell recommendations made over the past three months. The average price target of $208.98 implies a potential downside risk of 8.10%.
Read more analyst ratings on TSLA stock
Rivian Automobile (RIVN)
Like Tesla, I am also bullish on Rivian Automotive. This is mainly due to the potential undervaluation of the company relative to its ambitious production targets. After losing almost 90% of its value since its initial public offering (IPO) in 2021, Rivian is now trading at an attractive price based on its cash position.
With a market cap of $13.04 billion and $7.9 billion in cash and short-term investments, more than half of Rivian’s market value is tied to its balance sheet. However, based on its electric vehicle sales, Rivian trades on a P/S multiple of 2.5x, which, while lower than Tesla, remains nearly 3x higher than the auto industry average.
That said, Rivian’s biggest challenge is achieving profitability and ramping up production of its electric vehicle models. The company aims to produce up to 215,000 vehicles annually by 2026, up from 57,232 vehicles produced in 2023.
Is RIVN stock a bargain?
While I’m bullish on Rivian, it’s important to highlight the risks associated with this stock. Rivian’s losses are a concern. In the second quarter of this year, the company posted a net loss of $1.45 billion, up from a loss of $300 million a year earlier. Year-to-date losses now total $2.9 billion. However, as Wedbush analyst Dan Ives notes, Rivian’s biggest problem is its quarterly cash burn of $800 million to $1 billion. This remains a concern as the company needs capital to scale production and meet demand. More recently, a $5 billion investment from Volkswagen (VOW3) has eased dilution fears.
Wall Street is generally positive on RIVN, with 22 analysts rating the stock a Moderate Buy. This is based on 11 Buy, nine Hold and two Sell recommendations issued in the past three months. The average price target for RIVN shares of $17.24 suggests an upside potential of 31.10%.
Read more analyst ratings on RIVN stock
As for luxury electric vehicle maker Lucid, I have a bearish position. This is due to the extreme decline we are seeing in the company’s financials and market value. The company’s market cap has fallen from over $90 billion in 2021, when it held its IPO, to $8.34 billion. Despite the company’s decline, the valuation multiples are still hard to justify.
Lucid trades at a P/S multiple of 13x, nearly double Tesla’s multiple and more than six times greater than Rivian’s. Additionally, the company reported a net loss of $643.3 million in Q2 2024, which equates to approximately $268,000 in losses per vehicle sold, based on deliveries of 2,394 vehicles during the quarter.
Lucid’s situation would be even more dire if it weren’t for the funding provided by Saudi Arabia’s Public Investment Fund (PIF). Thanks to that funding, Lucid has $3.21 billion in cash and short-term investments. This year, the company raised another $1 billion to fund production of its new SUV dubbed “Gravity.” The Gravity, which is set to launch in December, is expected to cost less than $80,000 and could serve as a catalyst for LCID stock.
Is it wise to buy, hold or sell LCID stock?
My negative view of Lucid is largely due to its focus on the narrow, niche luxury vehicle market. Consumers are clamoring for more affordable electric vehicles in the U.S. and elsewhere. Morgan Stanley (MS) analyst Adam Jonas shares my negative view of Lucid, noting that it struggles to keep production costs below the selling price of its vehicles. This problem is compounded by the high cost of its luxury model, the Lucid Air, which starts at $69,900.
In total, 10 Wall Street analysts have a consensus Hold rating on LCID stock. This is based on eight Hold and two Sell recommendations made over the past three months. There are no Buy ratings on the stock. The average price target on LCID stock of $2.94 implies a downside risk of 20.97% from where the stock is currently trading.
Read more analyst ratings on LCID stock
Conclusion
I see Tesla as a top pick among this trio of leading electric vehicle manufacturers. The company has a lot of growth potential with its Robotaxis, AI and robotics. Rivian Automotive is also a buy due to its upside potential and reasonable valuation. I am pessimistic on Lucid because its valuation is too high and profitability remains a challenge for the company.
Revelation
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