Better EV Stock: Rivian vs. Tesla

It hasn't been a great start to the year for Rivian Automotive (NASDAQ: RIVN) stock. Shares are down 16% year to date as investors' faith in the electric vehicle (EV) growth story dwindles. The company itself is still in its early stages when expenses remain high and earning a profit is still relatively far out.

One would think some of those investors would instead seek a profitable EV maker like Tesla (NASDAQ: TSLA). Yet Tesla stock has fallen twice as far since the start of the year. But Tesla stock has a much bigger story. And its 42% drop so far in 2025 came after a monumental run higher after the U.S. election in November.

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Investors who want exposure to a still-growing EV sector now have an interesting decision to ponder. Would it make sense to own Rivian with its strong and growing brand and high long-term potential? Or should one buy the dip in Tesla stock based on its existing profitability and prospects beyond its current EV lineup.

Electric vehicles, artificial intelligence, and much more

Tesla investors have always looked beyond the existing electric car sales. Even as the EV maker had just begun ramping up to mass-volume vehicle sales, CEO Elon Musk boldly predicted the company would be producing 20 million vehicles annually by 2030. Musk has since backed off from that claim as Tesla's sales growth has slowed amid rising competition and slower-than-expected market penetration for EVs.

But investors were valuing Tesla shares at lofty levels that seemed to assume Musk's EV sales predictions would come to fruition. Now the company has a steady and profitable EV business. Even in what was considered a disappointing year, Tesla generated more than $7 billion in net income and $3.6 billion in free cash flow. It ended 2024 with $36.6 billion in cash and investments. No one can argue that the company hasn't been successful thus far.

Tesla is more than an electric car company, too. Its energy storage business had a record year last year with its highest-ever gross profit. It is heavily investing in artificial intelligence (AI) infrastructure. The company plans to use that to develop a self-driving EV taxi business and for its humanoid robotics aspirations. Tesla's investments last year quintupled the compute power available for AI training.

More complex than just the business

Investing in Tesla has gotten more complicated, though. Musk has potentially alienated some of Tesla's customer base and potential market with his entry into politics. The implementation of tariffs and a potential trade war also could negatively impact the business. Investors have to consider all risks, including the potential for China to retaliate against Tesla and Musk. Tesla's Shanghai plant is its biggest and the Chinese market is important to the business.

Speaking of risks, the stock's valuation remains a big one. The recent forward price-to-earnings (P/E) ratio is 90 even after the stock plunged nearly 50% from a December high of about $480 per share.

Image source: Rivian Automotive.

Rivian has its own lofty aspirations

Rivian doesn't make money yet. That's one of the biggest risks for investors. Ramping up vehicle manufacturing to a scale that can generate profits takes a lot of capital. And Rivian has been bleeding money for several years now.

While it did achieve its first gross profit in the fourth quarter, it still expects 2025 to be in the red. Management's guidance calls for an adjusted EBITDA loss of between $1.7 billion and $1.9 billion for the full year. That compares to about $2.7 billion last year after delivering about 51,500 vehicles.

But there's favorable news for Rivian as well. the company ended 2024 with $7.7 billion in cash and equivalents. It will begin to produce its next-generation R2 SUV later this year to expand its vehicle lineup for the first time. Rivian plans a smaller version called the R3 to follow. Both are expected to be more affordable and could be attractive to a more mass market of consumers.

Both stocks have potential

Tesla and Rivian each have unique attractions and risks for investors. Tesla has a steady and profitable business. But at its stock valuation, it needs its self-driving technology to be accepted by regulators and customers. Its energy storage business also needs to continue to grow -- and all while Elon Musk is increasingly becoming a polarizing figure.

There's even more risk with Rivian. It has developed a successful brand, but not at a volume of sales close to what it needs to attain. The R2 and subsequent R3 must steer the company to profitability.

I own both stocks, because I think each company has the potential for significant long-term success. However, I own them at an allocation level that is commensurate to the risk each business is exposed to. Investors wanting to decide between these two EV stocks need to balance those risks against the potential long-term success of each.

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Howard Smith has positions in Rivian Automotive and Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.