Rivian makes trucks and commercial vehicles.
Courtesy Rivian
The Rivian Automotive IPO was a smashing success, making the electric-truck start-up the second-most valuable auto maker in the U.S., behind Tesla but ahead of General Motors and Ford Motor .
Even bearish Wall Street price targets imply Tesla should be the world’s most valuable auto maker, but if the electric-vehicle market grows as expected, there will be plenty of money to be made by challenging the king. Growth investors’ task is to sift through the field of true contenders: Rivian (ticker: RIVN), Lucid (LCID), NIO (NIO), XPeng (XPEV), and Li Auto (LI).
Those are the other EV companies with valuations that rival those of traditional auto makers. Other startups can’t match those five, much less keep pace with Tesla (TSLA) in terms of manufacturing capacity, sales, cash on hand—and buzz.
Valuation is the first tool to use in sorting through the heap. Wall Street hasn’t generated a lot of sales forecasts for Rivian yet. New Street Research analyst Pierre Ferragu suggested the company could do $10 billion in sales by 2023, based on shipping roughly 150,000 trucks as well as some commercial vehicles for Amazon.com (AMZN). That gives Rivian a price of about 10 times estimated 2023 sales.
Lucid is trading for about 30 times. XPeng, NIO, and Li trade for roughly 7, 7, and 5 times estimated 2023 sales, respectively.
Tesla, for reference, trades for about 15 times estimated 2023 sales. The S&P 500 trades for about 2.8 times estimated 2023 sales. The Russell 1000 Growth Index trades for about 4.8 times.
All the companies have slightly different business models–and growth rates. But Lucid looks pricey, based on a simple look at relative multiples. The Chinese EV players look cheap, relatively speaking. Rivian falls in the middle.
The next question is how to pick. Rivian makes trucks and commercial vehicles, and Americans love trucks. Trucks and SUVs are big addressable markets. But the Chinese EV market is larger and more developed, yet also more competitive.
Rivian could be a Buy for aggressive growth investors looking for a Robin to Tesla’s Batman.
XPeng would be Barron’s bet, however. It is a little more expensive than Li and a little smaller than NIO. But it has more vehicle models than Li and is growing a bit faster than NIO.
To be sure, picking on relative valuation can be a dangerous game. An entire sector can fall out of favor, or be revalued by the market if growth slows.
But early in an industry’s life, when growth is fast, valuations may not match the fundamental realities on the factory floor and in the marketplace. That’s an opportunity.
Barron’s actually panned XPeng, NIO and Li about a year ago. They were too rich for us. But that was then. The average forward price-to-sales ratio for the three has dropped from about 15.2 times to 6.2 times. They have grown, quickly, while the stocks have gone nowhere special, so the story has changed.
XPeng stock is up about 4% so far in 2021. Li shares have added 3%, while NIO is down almost 20%. The S&P 500 has gained about 24%.
Write to Al Root at [email protected]
