Growth stocks have experienced a significant sell-off in the last couple of months. Electric vehicle (EV) stocks such as Rivian (RIVN) and Cenntro Electric Group (CENN) are now down 64% and 95% below their 52-week highs, respectively.
Alternatively, the EV market is a fast-growing one and remains attractive to long-term investors. The shift towards clean energy solutions should accelerate globally in the upcoming decade, allowing EV players to benefit from multiple secular benefits.
Given these factors, let's see which of these two stocks is currently a better investment.
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The bull case for Rivian
One of the hottest IPOs in 2021, Rivian is currently valued at a market cap of $61.5 billion. It is backed by giants such as Amazon (AMZN) and Ford (F) which account for over 30% of Rivian’s equity. While Tesla has successfully gained traction in the retail automotive space, Rivian aims to target the commercial segment that includes pick-up trucks, SUVs, and delivery vans which are also high-margin vehicles.
Rivian began shipments of the R1T electric truck in late 2021. It shipped 1,015 R1T vehicles last year which was just below its target of 1,200 vehicles. It also has an order book to ship 100,000 delivery vans to Amazon by the end of 2030.
Given the rising demand for EVs going forward, Rivian has a manufacturing capacity of 200,000 units in Illinois and 400,000 units at the Georgia facility which will begin production by Q1 of 2024. Rivian will also have to sacrifice growth for profitability to gain market share and it reported a loss of $1.2 billion in Q3 of 2021. The automobile sector is capital intensive and Rivian will have to ensure it has enough liquidity to support its growth plans.
Analysts tracking Rivian stock expect sales to touch $3.53 billion in 2022 valuing the company at 18x forward sales which are not too steep if we account for the prospects in this commercial EV space.
Cenntro Electric is a high-risk bet
A much smaller player compared to Rivian, Cenntro Electric is valued at a market cap of $444 million and manufactures electric light and medium-duty commercial vehicles. Last month, the company announced it manufactured 1,623 electric commercial vehicles in 2021 and shipped 628 vehicles in the month of December.
In the last year, Cenntro introduced four new vehicle models that include Class1-Class 4 vehicles in addition to off-road offerings. Right now it already distributed vehicles in 26 countries and has shipped 3,600 vehicles since 2017.
The company explained its scalable, decentralized production model allows it to increase production without associated infrastructure costs. It now aims to scale production in Q1 of 2022 as Cenntro has set up facilities in Florida and Germany.
The verdict
Both Rivian and Cenntro Electric have shipped just over a thousand units in 2021 and can be considered pre-revenue. The two companies are high-risk bets given their steep valuation multiples surrounding the stocks. But I believe Rivian is currently a better investment considering it's backed by Wall Street giants and has significant visibility in terms of order backlogs and deliveries.
RIVN shares were trading at $64.18 per share on Wednesday afternoon, down $5.44 (-7.81%). Year-to-date, RIVN has declined -38.10%, versus a -3.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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