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Best Bear Market Buy: Lucid Stock vs. Rivian Stock

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The past year of trading has generally been brutal for electric vehicle (EV) stocks, and smaller players in the space have been particularly hard hit. From a valuation perspective, Lucid Group (LCID 1.94%) and Rivian Automotive (RIVN -1.60%) have been among the biggest losers in the industry over the past 12 months, with each stock falling more than 80% over the duration.

But as share prices of companies in the sector have fallen, the long-term prospects for the electric vehicle revolution are unlikely to have been derailed. Which of these two EV players will prove to be the best buy-and-hold stock? Here’s why two Motley Fool contributors took issue with the debate.

A person looking through a telescope.

Image source: Getty Images.

Consumers can’t get enough electric vehicles

Parkev Tatevosian (Rivien): Rivian is enjoying a strong tailwind as consumers flock to electric vehicles. This trend is likely to continue, as governments subsidize the industry to encourage wider adoption.

Rivian snowballs: In its latest quarter, the company increased vehicle production by 67% over the previous quarter. With an order book of more than 114,000 orders, production is the crucial element.

In addition to the figure above, Rivian has an order for 100,000 electric delivery vans from Amazon. Management reaffirmed that the company will likely produce 25,000 vehicles in 2022. With $14 billion in cash as of September 30, it certainly has no shortage of resources to do so. But the question remains: can Rivian increase production effectively?

For the moment, the company is not profitable and is bleeding cash. In its last quarter, it lost $1.7 billion in net income. For the nine months ending September 30, its losses totaled $5 billion.

Its fashionable cars and government incentives ensure high customer demand. Investors could reap huge profits if Rivian manages to set up the manufacturing process.

Nevertheless, investors should bear in mind that this will not be an easy task. In other words, the potential reward of investing in Rivian also comes with significant risk.

Focus on the high-end electric vehicle market

Keith Noonan (Lucid): In addition to a myriad of macroeconomic pressures, Lucid has faced production challenges and waning investor enthusiasm for the broader electric vehicle space over the past year. The stock is trading down around 89% from its lifetime high, and the electric vehicle specialist now has a market capitalization of around $11.3 billion.

With the potential for a recession to shape much of the operating backdrop in 2023, it is possible that the broader automotive space will struggle over the next year. Small EV companies in particular could see outsized negative effects. But Lucid presents a potentially explosive opportunity despite its admittedly large risk profile.

The business is moving fast and is currently trading at around 4.3x expected sales for next year, which opens the door to valuation turbulence in conjunction with broader market trends. But it also leaves room for explosive capital appreciation if the company can execute on its vision.

With rapid revenue growth and the company’s focus on the ultra-premium segment of the electric vehicle market creating an opportunity for strong margins, Lucid may have an easier time transitioning to profitability and earnings growth versus to many industry peers.

Lucid’s focus on luxury sedans could help it stand out in the increasingly crowded EV market, and its shift to luxury SUVs with the launch of its Gravity model in 2024 could also help. prove successful.

Even after big sales, Lucid remains a high-risk title. The company’s vision for growth in the electric vehicle industry may not materialize, and its share price still has room for continued decline from current levels.

Crucially, Lucid is only in the very early stages of accelerating production and sales initiatives, which carries risks even in the wake of a dramatic contraction in valuations. But there is also great potential here.

Which stock is the best buy?

Rivian and Lucid both stand out as high-risk, high-reward stocks. Although still at a relatively early stage in the execution of its long-term growth strategy, Rivian’s business is currently in a more developed state. Its agreements with partner companies, including Amazon, represent significant votes of confidence and help create additional security for its performance prospects.

Meanwhile, Lucid stock looks even riskier at current levels, but its focus on the luxury electric vehicle market could potentially prove very profitable.

Choosing between the two stocks, investors must weigh each company’s individual strengths and their different approach to the electric vehicle market and decide based on which strategy looks more appealing.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Keith Noonan has no position in the stocks mentioned. Parkev Tatevosian, CFA has no position in the stocks mentioned. The Motley Fool has posts and recommends Amazon.com. The Motley Fool has a disclosure policy.

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