In the highly competitive electric vehicle (EV) market, major players such as Tesla (TSLA), Rivian Automotive (RIVN), and Lucid Group (LCID) have encountered significant headwinds, with demand not meeting expectations. In this article, I will use the TipRanks Stock Comparison Tool to explain why I am bullish on TSLA and RIVN, and bearish on LCID. I’ll also outline why I consider Tesla to be the best choice among the three automakers.
Despite a stretched valuation, I am bullish on Tesla. The company’s shares currently trade at a forward P/E ratio of 97 times future earnings estimates, which is about 15% below its five-year average. This is largely due to a substantial decline of over 40% in the share price since it peaked in 2021, driven by weaker-than-expected EV demand and increased competition. Still, Tesla remains the top-selling EV maker globally.
Tesla had aimed for 50% growth in vehicle sales and production this year but instead has seen its revenue decline. In Q2, total automotive revenue was $19.8 billion, down 7% from a year ago. Tesla’s quarterly production and delivery figures in July showed 443,956 vehicle deliveries, which was about 5% lower than the previous year.
On the positive side, Q2 saw strong operational performance, with cash from operations up 18% year over year to $3.61 billion, and free cash flow of $1.34 billion. This marks a rebound from Q1 of this year when cash from operations fell 90% to $242 million, and free cash flow declined to negative $2.5 billion.
Is TSLA A Buy, Hold or Sell?
My bullish stance on Tesla isn’t based on recent results but rather on its ambitious growth forecasts. Tesla’s future is increasingly tied to artificial intelligence (AI), Robotaxis, and robotics. The company is set to unveil its highly anticipated Robotaxi on October 10, which could serve as a major catalyst for the stock.
While some investors may not view Tesla as a major AI player, its large installed base and significant involvement in AI are noteworthy. Dan Ives, a tech analyst at Wedbush Securities, argues that Tesla is the most undervalued AI company. He believes Tesla could become a trillion-dollar concern as it stabilizes demand and improves its pricing model.
Currently, Wall Street’s consensus on TSLA stock is that it is a Hold. This is based on 12 Buy, 16 Hold and eight Sell recommendations made in the last three months. The average price target of $208.98 implies potential downside risk of 8.10%.
Read more analyst ratings on TSLA stock
Rivian Automotive (RIVN)
Like Tesla, I am also bullish on Rivian Automotive. This is mainly because of the company’s potential undervaluation vis-à-vis its ambitious production targets. After losing nearly 90% of its value since its 2021 initial public offering (IPO), Rivian now trades at an attractive price based on its cash position.
With a market capitalization 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 at a P/S ratio of 2.5 times, which, while lower than Tesla, remains almost 3 times above the average for the automotive industry.
That said, the main challenge facing Rivian is achieving profitability and increasing the 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 Buy?
While I’m bullish on Rivian, it’s important to point out the risks with this stock. Rivian’s unprofitability is a concern. In Q2 of this year, the company posted a net loss of $1.45 billion, up from a $300 million loss a year earlier. The company’s year-to-date loss now totals $2.9 billion. However, as Wedbush analyst Dan Ives notes, Rivian’s primary issue is its quarterly cash burn of $800 million to $1 billion. This remains a concern as the company requires 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 made in the past three months. The average price target on RIVN stock of $17.24 suggests 31.10% upside potential.
Read more analyst ratings on RIVN stock
Regarding luxury electric vehicle manufacturer Lucid, I hold a bearish position. This is because of the extreme decline seen in the company’s finances and market value. The company’s market capitalization has declined to $8.34 billion from more than $90 billion in 2021 when it went held its IPO. Despite the company’s decline, the valuation multiples still remain difficult to justify.
Lucid trades at a 13 times P/S ratio, nearly double Tesla’s multiple and more than six times greater than Rivian’s. Additionally, the company reported a Q2 2024 net loss of $643.3 million, translating to approximately $268,000 in losses per vehicle sold, based on the delivery of 2,394 vehicles during the quarter.
The situation at Lucid would be more dire if it weren’t for funding from Saudi Arabia’s Public Investment Fund (PIF). Thanks to that funding, Lucid holds $3.21 billion in cash and short-term investments. This year, the company raised an additional $1 billion for the production of its new SUV called “the Gravity.” Scheduled to launch in December this year, the Gravity is expected to be priced under $80,000, and may serve as a catalyst for LCID stock.
Is LCID Stock A Buy, Hold, or Sell?
My bearish view of Lucid is largely due to its focus on the narrow and niche luxury vehicle market. Consumers are clamoring for more affordable EVs in the U.S. and elsewhere. Morgan Stanley (MS) analyst Adam Jonas shares my bearish outlook, noting Lucid’s difficulty in keeping production costs below the selling price of its vehicles. This issue is further exacerbated by the high cost of its luxury model, the Lucid Air, which has a starting price of $69,900.
A total of 10 Wall Street analysts have a consensus Hold rating on LCID stock. This is based on eight Hold and two Sell recommendations made in the last three months. There are no Buy ratings on the stock. The average price target on LCID stock of $2.94 implies downside risk of 20.97% from where the shares currently trade.
Read more analyst ratings on LCID stock
Conclusion
I view Tesla as a top pick among this trio of leading electric vehicle manufacturers. The company has plenty 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 bearish on Lucid because its valuation is too high and profitability remains a challenge at the company.
