Despite volatility in the headlines, the electric vehicle (EV) industry has been on a consistent uptrend over the past several years. Today, 7.8% of vehicles sold in the U.S. are electric. That’s up from just 3.3% at the start of 2022. There have been dips along the way — including a fairly precipitous drop in the first quarter of 2021 — but the overall trajectory is undeniably positive, with most long-term forecasts calling for steadily higher demand for EVs 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 a valuation of more than $1 trillion, with patient investors accumulating huge long-term gains. Other EV makers, however, are now on the brink of bankruptcy.
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When it comes to electric car stocks, none can match the scale of 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 advantage could cement Tesla stock as the EV stock for years to come.
From Fisker to Lordstown Motors, countless electric car start-ups 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 specific battery technology just wasn’t a great fit for what the future demanded. All of these things may be true for any one company. But the biggest reason that scores of EV makers 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 has been only “months away” from bankruptcy on several different occasions. And it makes sense that money is such an important factor when it comes to being a successful automaker. Designing, building, marketing, and delivering a car or a truck of any kind requires billions in capital. If a mistake is made, it could easily cost hundreds of millions of dollars. Plus, it can take years, or even a decade, to get a vehicle from the idea stage to production. Start-ups are rarely afforded such high levels 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 makes sense to start with the company best positioned to supply that takeover. Even if $200 can’t buy a whole share of Tesla, the ability to own fractional shares makes it a top bet.
With a $1.5 trillion market cap, the long-term upside potential for Tesla may be limited. Rivian Automotive(NASDAQ: RIVN), a rival EV maker, is in the opposite situation. This company has a market cap of just $16 billion. There are more risks to this story, but if the company can execute and follow in the footsteps of Tesla, it’s not hard to see Rivian shares having 1,000% or more in long-term upside.
From a financial aspect, Rivian’s resources pale in comparison to Tesla’s. Rivian, for instance, has around $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 on hand, not to mention its ability to raise tens of billions in additional capital at any moment through additional share sales.
While Rivian doesn’t have the financial resources of Tesla, it has something growth investors crave: huge upside potential. Its market cap is only around $16 billion — 99% smaller than Tesla’s. If the company can execute, it can arguably replicate Tesla’s incredible rise. In 2026, the company is expected to begin shipping three mass market vehicles: the R2, R3, and R3X. When Tesla first shipped its mass market vehicles — the Model 3 and Model Y — its sales and stock valuation soared.
There are plenty of risks to investing in a smaller EV maker like Rivian. But by dividing your EV portfolio evenly across both Tesla and Rivian, you essentially have your portfolio diversified across both the current market leader and potentially the next market leader years down the road.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
