Within the extremely aggressive electrical car (EV) market, main gamers equivalent to Tesla , Rivian Automotive , and Lucid Group have encountered vital headwinds, with demand not assembly expectations. On this article, I’ll use the to clarify why I’m bullish on TSLA and RIVN, and bearish on LCID. I’ll additionally define why I take into account Tesla to be your best option among the many three automakers.

Regardless of a stretched valuation, I’m bullish on Tesla. The corporate’s shares at present commerce at a ahead P/E ratio of 97 instances future earnings estimates, which is about 15% under its five-year common. That is largely resulting from a considerable decline of over 40% within the share worth because it peaked in 2021, pushed by weaker-than-expected EV demand and elevated competitors. Nonetheless, Tesla stays the top-selling EV maker globally.

Tesla had aimed for 50% progress in car gross sales and manufacturing this 12 months however as an alternative has seen its income decline. In Q2, complete automotive income was $19.8 billion, down 7% from a 12 months in the past. Tesla’s quarterly manufacturing and supply figures in July confirmed 443,956 car deliveries, which was about 5% decrease than the earlier 12 months.

On the optimistic facet, Q2 noticed sturdy operational efficiency, with money from operations up 18% 12 months over 12 months to $3.61 billion, and free money circulation of $1.34 billion. This marks a rebound from Q1 of this 12 months when money from operations fell 90% to $242 million, and free money circulation declined to unfavourable $2.5 billion.

Is TSLA A Purchase, Maintain or Promote?

My bullish stance on Tesla isn’t primarily based on current outcomes however reasonably on its formidable progress forecasts. Tesla’s future is more and more tied to synthetic intelligence (AI), Robotaxis, and robotics. The corporate is ready to unveil its extremely anticipated Robotaxi on October 10, which might function a serious catalyst for the inventory.

Whereas some traders might not view Tesla as a serious AI participant, its massive put in base and vital involvement in AI are noteworthy. Dan Ives, a tech analyst at Wedbush Securities, argues that Tesla is probably the most undervalued AI firm. He believes Tesla might grow to be a trillion-dollar concern because it stabilizes demand and improves its pricing mannequin.

At present, Wall Avenue’s consensus on TSLA inventory is that it’s a Maintain. That is primarily based on 12 Purchase, 16 Maintain and eight Promote suggestions made within the final three months. of $208.98 implies potential draw back danger of 8.10%.

Rivian Automotive

Like Tesla, I’m additionally bullish on Rivian Automotive. That is primarily due to the corporate’s potential undervaluation vis-à-vis its formidable manufacturing targets. After dropping almost 90% of its worth since its 2021 preliminary public providing (IPO), Rivian now trades at a pretty worth primarily based on its money place.

With a market capitalization of $13.04 billion and $7.9 billion in money and short-term investments, greater than half of Rivian’s market worth is tied to its stability sheet. Nonetheless, primarily based on its electrical car gross sales, Rivian trades at a P/S ratio of two.5 instances, which, whereas decrease than Tesla, stays nearly 3 instances above the common for the automotive business.

That mentioned, the primary problem dealing with Rivian is reaching profitability and rising the manufacturing of its electrical car fashions. The corporate goals to provide as much as 215,000 autos yearly by 2026, up from 57,232 autos produced in 2023.

Is RIVN Inventory a Purchase?

Whereas I’m bullish on Rivian, it’s necessary to level out the dangers with this inventory. Rivian’s unprofitability is a priority. In Q2 of this 12 months, the corporate posted a internet lack of $1.45 billion, up from a $300 million loss a 12 months earlier. The corporate’s year-to-date loss now totals $2.9 billion. Nonetheless, as Wedbush analyst Dan Ives notes, Rivian’s main concern is its quarterly money burn of $800 million to $1 billion. This stays a priority as the corporate requires capital to scale manufacturing and meet demand. Extra not too long ago, a has eased dilution fears.

Wall Avenue is usually optimistic on RIVN, with 22 analysts score the inventory a Reasonable Purchase. That is primarily based on 11 Purchase, 9 Maintain and two Promote suggestions made up to now three months. The suggests 31.10% upside potential.

Relating to luxurious electrical car producer Lucid, I maintain a bearish place. That is due to the intense decline seen within the firm’s funds and market worth. The corporate’s market capitalization has declined to $8.34 billion from greater than $90 billion in 2021 when it went held its IPO. Regardless of the corporate’s decline, the valuation multiples nonetheless stay tough to justify.

Lucid trades at a 13 instances P/S ratio, almost double Tesla’s a number of and greater than six instances larger than Rivian’s. Moreover, the corporate reported a Q2 2024 internet lack of $643.3 million, translating to roughly $268,000 in losses per car bought, primarily based on the supply of two,394 autos through the quarter.

The state of affairs at Lucid could be extra dire if it weren’t for funding from Saudi Arabia’s Public Funding Fund (PIF). Due to that funding, Lucid holds $3.21 billion in money and short-term investments. This 12 months, the corporate raised a further $1 billion for the manufacturing of its new SUV referred to as “the Gravity.” Scheduled to launch in December this 12 months, the Gravity is predicted to be priced beneath $80,000, and will function a catalyst for LCID inventory.

Is LCID Inventory A Purchase, Maintain, or Promote?

My bearish view of Lucid is essentially resulting from its give attention to the slender and area of interest luxurious car market. Shoppers are clamoring for extra inexpensive EVs within the U.S. and elsewhere. Morgan Stanley analyst Adam Jonas my bearish outlook, noting Lucid’s issue in maintaining manufacturing prices under the promoting worth of its autos. This concern is additional exacerbated by the excessive value of its luxurious mannequin, the Lucid Air, which has a beginning worth of $69,900.

A complete of 10 Wall Avenue analysts have a consensus Maintain score on LCID inventory. That is primarily based on eight Maintain and two Promote suggestions made within the final three months. There aren’t any Purchase scores on the inventory. The implies draw back danger of 20.97% from the place the shares at present commerce.

Conclusion

I view Tesla as a high choose amongst this trio of main electrical car producers. The corporate has loads of progress potential with its Robotaxis, AI and robotics. Rivian Automotive can be a Purchase resulting from its upside potential and cheap valuation. I’m bearish on Lucid as a result of its valuation is simply too excessive and profitability stays a problem on the firm.