Which US EV stock is the best choice?

In the highly competitive electric vehicle (EV) market, major players such as Tesla ( TSLA ), Rivian Automotive ( RIVN ) and Lucid Group ( LCID ) have faced headwinds as demand fell short of expectations. In this article, I’ll use the TipRanks Stock Comparison Tool to explain why I’m bullish on TSLA and RIVN and why I’m bullish on LCID. I will also point out why I consider Tesla to be the best choice of the three automakers.

Despite a stretched valuation, I’m bullish on Tesla. The company’s stock currently trades at a forward P/E ratio of 97 times forward earnings estimates, which is about 15% below its five-year average. This is largely due to a substantial more than 40% decline in the share price since it peaked in 2021, caused by weaker-than-expected demand for electric vehicles and increased competition. However, Tesla remains the best-selling electric vehicle manufacturer globally.

Tesla had targeted a 50% increase in vehicle sales and production this year, but instead saw its revenue fall. In Q2, total auto industry 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 a year earlier.

On the positive side, Q2 saw a strong operating 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 turnaround from Q1 this year, when cash from operations fell 90% to $242 million and free cash flow fell to $2.5 billion.

Is TSLA a Buy, Hold or Sell?

My bullish stance on Tesla is not based on recent results, but rather on its ambitious growth forecasts. Tesla’s future is increasingly linked 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 player in AI, its large installed base and significant involvement in AI are worth noting. Dan Ives, technology analyst at Wedbush Securities, says 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, the Wall Street 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 past three months. The average target price of $208.98 implies a potential downside risk of 8.10%.

Read more analyst ratings on TSLA stock

Rivian Automotive (RIVN)

Like Tesla, I’m bullish on Rivian Automotive. This is mainly due to underestimating the company’s potential against its ambitious production targets. After losing nearly 90% of its value since its initial public offering (IPO) in 2021, Rivian is now trading at an attractive price based on its cash position.

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With a market cap 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 2.5x, which, while lower than Tesla, remains nearly 3x above the auto industry average.

That said, the main challenge facing Rivian is achieving profitability and increasing production of 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 loss of $300 million a year earlier. The company’s loss to date now totals $2.9 billion. However, as Wedbush analyst Dan Ives notes, Rivian’s main problem is its quarterly cash burn of $800 billion to $1 billion. This remains a concern as the company needs capital to ramp up production and meet demand. More recently, a $5 billion investment from Volkswagen ( VOW3 ) 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 over the last three months. RIVN’s average price target of $17.24 suggests a 31.10% upside potential.

Read more analyst ratings on RIVN stock

I’m bearish on luxury electric vehicle maker Lucid. This is due to the extreme decline seen in the company’s finances and market value. The company’s market cap fell to $8.34 billion, down from more than $90 billion in 2021 when it made its IPO. Despite the company’s decline, valuation multiples still remain difficult to justify.

Lucid trades at a P/E ratio of 13 times, nearly double Tesla’s multiple and more than six times Rivian’s. Additionally, the company reported a Q2 2024 net loss of $643.3 million, which translates into losses of approximately $268,000 per vehicle sold, based on the delivery of 2,394 vehicles during the quarter.

Lucid’s situation would be worse if it weren’t for funding from Saudi Arabia’s Public Investment Fund (PIF). Thanks to this funding, Lucid has $3.21 billion in cash and short-term investments. This year, the company raised another billion dollars for the production of its new SUV called “The Gravity”. Scheduled to launch in December this year, Gravity is expected to be priced below $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 market of luxury vehicles. Consumers are demanding more affordable electric cars in the US 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 problem is further compounded 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 past three months. There are no ratings Buy in stock. LCID’s average price target of $2.94 implies a downside risk of 20.97% from where the stock is currently trading.

Read more analyst ratings on LCID stock

Conclusion

I see Tesla as a top choice among this trio of top electric vehicle manufacturers. The company has a lot of potential for growth with Robotaxis, AI and robotics. Rivian Automotive is also a buy due to its growth potential and reasonable valuation. I am bearish on Lucid as its valuation is too high and profitability remains a challenge for the company.

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