Best Bear Market Buy: Nio vs. Rivian Stock |  The Motley Fool

Best Bear Market Buy: Nio vs. Rivian Stock | The Motley Fool

In the battle for electric vehicle (EV) startups, two popular stocks have suffered the same fate this year: Rivian Automotive (RIVN -5.39%) and Nio (NIO -1.87%). Nio has been around for several years and delivered almost 91,000 electric vehicles in 2021, while Rivian only went public last year and managed to deliver around 900 vehicles in the year.

Yet with a bear market and many challenges hitting Rivian and Nio in recent months, their shares have fallen almost 70% this year. Which EV stock makes a better buy in the bear market now? Let’s find out.

Focus on production and demand

Howard Smith (rivian): Rivian shares are down about 70% year-to-date. That doesn’t necessarily make them cheap by most measures, though.

The company’s $28.5 billion market capitalization is still about 14.5 times the revenue it is expected to generate this year. For perspective, this compares to a price-to-sales (P/S) ratio of 8 for the past 12 months. You’re here. But production and sales are expected to continue rising through 2023, bringing this metric lower relative to Rivian’s current share price.

In its recently released third quarter report, Rivian maintained its production volume estimate for 2022, implying 45% sequential growth in the fourth quarter. This growth is accompanied by an equally strong expansion in demand, as shown in the graph below.

Data source: Rivian Automotive. Table by author.

The pre-order backlog shown above is for its R1-platform consumer pickup truck and SUV offerings. They are net of cancellations and deliveries and do not include the order of 100,000 electric delivery vans that Rivian has from Amazon.

The question for investors remains the valuation of the company, as well as its capital position. Rivian continues to lose a large amount of money. It reported a net loss of more than $1.7 billion in the third quarter, but ended the period with $13.8 billion in cash and cash equivalents. That, however, is down from $15.4 billion in the previous quarter.

While valuation issues and execution risks remain, the recently released quarter should have given investors renewed confidence in the potential of Rivian’s business. With the stock down 70% in 2022, it might be time to make Rivian a bear market buy.

Making waves in a massive electric vehicle market

Neha Chamaria (Nio): Like Rivian, Nio loses money. It suffered a net loss of $582 million in the third quarter, up 45% year-over-year. Unlike Rivian, however, Nio produces and delivers cars quickly and has already established a foothold in its home market of China, which also happens to be the world’s largest market for electric vehicles.

The problem with Nio right now is, ironically, China. The national zero COVID policy continues to hurt manufacturers, and Nio had to suspend operations for a few weeks at least twice in 2022 to comply with lockdowns. This, of course, hurt production and sales volumes and was a major fear that drove Nio’s stock price down.

Nio, however, is confident it can deliver a record number of cars in the fourth quarter thanks to higher production of newly launched EVs, especially its ET5 premium midsize sedan. Nio delivered its first ET5 in September and expects the sedan to outsell the popular BMW 3 Series in China within a year. If this happens, it could boost Nio’s brand image and market share in China’s high-end electric car market.

Nio also has big plans for 2023, including the launch of five new products in the first half and an eye for a gross margin of 20% or more if battery costs come down. Given that Nio will already surpass 0.1 million shipments in 2022, I see strong growth potential in this business. With Nio also already generating billions of dollars in revenue – it generated around $1.8 billion in revenue in the third quarter alone – I think the stock is a solid buy at its current market cap of 18. billions of dollars.

The best electric vehicle stock to buy

Given the size and scale of Nio’s operations, growth plans and financial condition, it appears well positioned to generate near-term growth, and that should be reflected in its share price. That doesn’t mean you should write off Rivian, though.

Nio carries the “China” risk that Rivian does not. Given its strong cash flow and support from Amazon and Fordall Rivian might need to regain investor confidence is to produce 25,000 electric vehicles this year.

Rivian still looks like a more speculative bet at the moment, although 2023 could be a big year for both electric vehicle stocks.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Neha Chamaria has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Nio Inc. and Tesla. The Motley Fool has a disclosure policy.

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