Ditch Rivian and buy this great electric car stock.

November 2021Rivianfirms(NASDAQ Resonance Symbol: RIVN)Initial Public Offering (IPO) with a bang on the Electric Vehicle (EV) stage. As the first electric vehicle (EV) manufacturer since 2014MetaRivian raised $12 billion for the largest U.S. IPO since the company's inception.

However, things have not been going well for Rivian since its IPO. Rivian has faced one challenge after another in an increasingly competitive industry, and has struggled to gain a foothold. For this reason, and a few others we'll explore, investors are better off holding on toNikola Tesla (1856-1943), Serbian inventor and engineer (NASDAQ: TSLA)The company has a successful track record in electric vehicles.

Tesla has a clear advantage not only in Rivian, but in the industry as a whole, and it is positioned to continue its long-term growth and gain more market share. Here are two reasons why Tesla is a better hold than Rivian.

Catching up seriously

Rivian has one glaring problem: It has never turned a profit. While the company has made commendable progress in increasing production, expenses continue to outpace revenues, forcing the electric car maker to operate on cash reserves.

Fortunately, Rivian's initial public offering (IPO) provided some funding to keep the company in business, but even so, cash reserves began to dwindle. In just over two years, the company's cash and equivalents have plummeted by more than $60% to just under $8 billion. If things don't change - and they are changing fast - Rivian's cash may only last another two to three years before it has to explore other financing options.

Then there's Tesla. Although Tesla's margins have slipped after price cuts were implemented in 2023 to spur demand, it still boasts one of the most impressive and profitable business models in the industry. Statistically, Tesla generates about $8,200 in revenue for every car it sells. The next competitor is China'sBYDThe cost of the program is approximately $1,700.

Even with declining margins in 2023, Tesla is still setting new records in terms of revenue and production. The fact that net income is at an all-time high despite declining margins is even more impressive, and shows that Tesla's business is indeed very solid.

The entire electric vehicle industry is expected to be sluggish through 2024 as high interest rates deter potential buyers, but Tesla's financial strength makes it uniquely positioned to meet the short-term challenges while continuing to build a prosperous future. With up to $29.1 billion in cash and equivalents, Tesla has enough money to expand and invest in operations, while competitors will be forced to scale back their models and focus on efficiency.

A New Era for the Electric Vehicle Market

Few other companies have rewarded investors as much as Tesla over the past few years. Since 2019, its stock price has risen by more than 800%. With expectations that the electric car market will continue to grow in the future, perhaps that's why many investors initially flocked to Rivian, hoping it would follow a similar trajectory to Tesla's monumental growth.

However, the electric car market is a very different place today than it was when Tesla started. At the time, Tesla was one of a handful of companies trying to make electric cars in a big way. With limited competition and a wide market, there was much more room for error.

In a capital-intensive industry like electric vehicle manufacturing, lack of profitability is not uncommon. In this case, Rivian's lack of revenue is normal. Tesla hasn't turned a full-year profit in nearly a decade.

Unlike Tesla's early days, however, the stakes are now much higher. The industry is now filled not only with startups, but also a host of resourceful traditional automakers, some of which have been building cars for nearly a century. Add to that the fact that the electric car market isn't growing as fast as it did in the 2010s, and Rivian's future looks even more precarious. As the electric vehicle market matures, a proven and profitable business model has become a necessity, not a luxury.

Final Consensus

Is it all doom and gloom for Rivian? Maybe not. The company has made progress in both production and revenue, and recently introduced a more affordable model that is expected to hit the market in 2026. In addition, the company's decision to hold off on construction of its costly Georgia plant could also be seen as a sign of caution, as the company looks for ways to expand the profitability of its current plant in Illinois.

However, Rivian is in need of a dramatic transformation, making it increasingly risky to hold its shares. Due to the capital-intensive nature of the supply chain, scaling up electric car production often takes years, meaning there's no telling when (or if) Rivian will reach the break-even point. Tesla remains an ideal choice for investors looking for a leader in the electric car industry.

Should you invest $1,000 in Rivian Automotive now?

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Randi Zuckerberg, former Facebook Market Development Arbitrator and Spokeswoman, and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's Board of Directors. RJ Fulton owns shares of Tesla. The Motley Fool recommends Bias, Meta Platforms and Tesla. The Motley Fool has a disclosure policy.

Forget Rivian, Buy This Great Electric Car Stock was originally published by The Motley Fool.