If you believe that electric vehicles (EVs) are the future of the automotive industry, as I do, then you've likely spent some time trying to figure out which EV makers to invest in. Is it better to choose an automotive stalwart or opt for an EV start-up with lots of potential upside?
You don't have to choose either/or, of course, but if you've got just $500 to invest right now, I think you're better off putting it toward the start-up. Specifically, I've got my money on Rivian Automotive (NASDAQ: RIVN). Here's why I think it's worth the investment right now.
1. Rivian has strong brand identity and loyalty
First, Rivian has created a brand that's already standing out from the rest of the EV crowd. Rivian tops the list of all automakers for the top car brand customers would purchase again -- with 86% saying they'd buy another Rivian, according to Consumer Reports. The percentage was even higher than brands with very loyal customers, including BMW and Porsche.
It's easy to gloss over brand strength and focus instead on more quantitative data when considering a Rivian investment. But I'd argue that for a new company, particularly in the automotive industry where brand recognition is essential, it's an impressive feat for Rivian to have quickly established itself.
2. It's closing in on gross profitability
Getting a new EV start-up off the ground is expensive and takes years to reach profitability, but Rivian is closing in on it. Rivian's management says it will have a "modest" gross profit by the end of the fourth quarter.
Rivian instituted a range of cost-cutting measures earlier this year to help reach its goal, including reengineering some of the internal systems in its vehicles. The result was a 35% reduction in material costs of its vans and a similar drop in costs for its truck and SUV.
Rivian also postponed a new manufacturing plant in Georgia, saving the company $2 billion. These combined moves have showed Rivian's commitment to reaching its gross profit goals.
3. Cheaper vehicles are on the way
While the R1T and R1S are relatively popular, their price tags are out of reach for many buyers. The R1S starts at $80,400 and the R1T at about $70,000.
However, Rivian will begin selling two new, cheaper vehicles in 2026, the R2 and the R3. The R2 is a midsize SUV starting at just $46,000, and the R3 is a midsize crossover starting at around $40,000.
With the average new vehicle costing about $47,000 in the U.S. right now, the R2 and R3 should expand Rivian's customer base to far more potential car buyers and hopefully boost the company's vehicle sales.
Image source: Rivian Automotive.
4. You can buy Rivian at a relative discount right now
Rivian went public when the buzz around EV stocks was pretty high, but many stocks have since come back down to Earth, including an 86% drop in Rivian's share price. Rivian's shares also trade at a discount compared to some of its rivals. Rivian's stock has a price-to-sales ratio of 2.5, compared to fellow EV start-up Lucid's P/S ratio of 11.8.
You'll have to be patient
If you spend your $500 on Rivian's stock, know that you'll likely have to wait a while to see any return. And, like any investment, there's no guarantee it will ever come. But if you're optimistic about the future of EVs and you recognize Rivian's ability to build great vehicles and develop a strong brand, then putting $500 toward the EV start-up right now could end up being a smart bet.
Should you invest $1,000 in Rivian Automotive right now?
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Chris Neiger has positions in Rivian Automotive. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a disclosure policy.
