Could Rivian Be The Next Tesla?

As one of the most promising competitors in the electric vehicle (EV) market, Rivian Cars (RIVN -2.27%) has grown to become a popular investment for many investors looking to benefit from the future adoption of EVs. The main hope is that the upcoming company can follow the path of the current EV giant, Tesla (TSLA -1.92%).

However, with some investigation, it will become clear that Rivian’s potential to be the “next Tesla” is likely nothing more than a grandiose vision. This is why investors are better off focusing on Tesla and avoiding Rivian.

The story of the tape

The biggest difference between Rivian and Tesla is seen when comparing production and revenue. In 2023, Rivian produced 57,232 vehicles, a new record for the company. Meanwhile, Tesla produced more than 1.8 million cars, another record.

Although clearly in the lead in terms of production, Tesla’s real strength comes in the form of profits. In 2023, Tesla earned $15 billion. In stark contrast, Rivian lost nearly $4.5 billion as costs continued to outpace revenue even as production increased.

Many Rivian bears and Tesla bulls point to this lack of profitability as reason enough to stop the startup, but they fail to realize that even Tesla has been unprofitable for most of its history. Tesla’s first year to post net income didn’t come until 2020, nearly a decade after its initial public offering (IPO).

In this regard, Rivian may be ahead of Tesla in its early years. It wasn’t until 2015 that Tesla made more than 50,000 cars. Rivian made the move just three years after going public.

The reason Rivian will never be Tesla

In the 2010s, the EV market was desolate compared to today. Besides Tesla, there were only a few other participants trying to figure out the problem of mass-producing EVs. This is almost the exact opposite of the market today.

It’s no secret that the EV industry has grown over the past ten years and will continue to grow in the future. But while some investors may see easy dollars to be made by investing in EV makers, the reality is that the market is far more competitive than in Tesla’s early days, ultimately spelling trouble for startups like Rivian.

In the past era, the margin of error was greater, which meant Tesla’s profitability was not as bad as it would be today. With several legacy automakers with abundant resources and large capital reserves entering the industry, there is little wiggle room for startups like Rivian.

To make matters worse, the expectation is that the growth of the EV market is expected to slow down in the US in 2024. Fortunately for Tesla, its global presence and strong cash reserves of nearly $30 billion will help it cope with the domestic market of lack. For Rivian, its closure with the United States and its inability to make a profit may cause serious problems in 2024, and if they are prolonged, they may enter the following years.

All that being said, does it mean Rivian will never turn around? Probably not. But the window of opportunity is closing. To no avail, Rivian has eaten into its cash reserves at an alarming rate. In just over three years, the company’s cash and cash equivalents have declined by more than 60%. Fortunately, it had the largest IPO of any American company since then Meta Platforms in 2014, but if something doesn’t change, and change fast, Rivian may only have a few runway years left before it needs to explore alternative financing options.

If Rivian is to become the next Tesla, major changes would need to be made. Not only is it a difficult task in today’s market, but due to the capital-intensive nature of automotive manufacturing, this process often takes years. With new challenges emerging, Rivian doesn’t have luxury time on its side like Tesla did.

Currently, investors are allocating favorably to EV manufacturers with proven track records and solid financial health. If not Tesla, then maybe a Chinese base BYD. But until Rivian gets costs under control and approaches the break-even point, it’s probably best to leave it in the rearview mirror.