It's no secret to car drivers and investors alike that the electric vehicle market is here to stay, and the opportunity to make a profit off of this revolutionary change is huge.
But should the hype of a highly anticipated IPO make Rivian Automotive (RIVN -4.68%) -- barely more than 1,000 cars sold -- stock a better investment than the stock in a company like Xpeng Motors (XPEV 9.02%), which is already cranking out tens of thousands of vehicles for its customers?
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An IPO boom is starting to bust
In early November Rivian launched its highly anticipated IPO, priced at $78 per share. Within a week the stock had more than doubled, hitting a high of $179. But the feel good news for early investors stopped there.
If the stock shares of Rivian were an actual car, that tenderness you feel on the downhill is the wear and tear on the brakes to keep it from careening out of control, highlighted by an 11% drop on Jan. 5th. For those who waited on the sidelines during the IPO a good entry point is getting better by the day, but at what price that will be is still hard to say.
The company has a few good things going for it. First, the EV market in North America is projected to grow at a compound annual growth rate of 27% through 2027, to $194 billion. Second, the company has begun rolling out its first vehicles to paying customers, and is seeing a 28% increase over November in vehicle pre-orders, to 71,000 as of Dec. 15. And third, the company is supported by Amazon -- yes, the online retailer/web services behemoth -- which has a 20% stake in the company, along with a contract to purchase 100,000 delivery vans from Rivian, deliverable by 2025.
What Rivian has going against it is that timelines, goals, and earnings are being missed. In its Q3 results the company announced a net loss of $1.2 billion -- an earnings loss of $12.21 per share -- on $1 million of revenue. Wall Street analysts were looking for an earnings loss of $5.29 on that same revenue number.The company also fell 13% short of its goal to produce 1,200 vehicles by year end, coming in at 1,038.
To make matters a bit worse for stockholders, Amazon announced on Jan. 5 that it is teaming up with Rivian competitor, Stellantis NV, to buy electric delivery vans from Stellantis. This news threw red flags for investors, driving Rivian stock down as much as 11% in one day, driven by fears of what that impact could be long term to the relationship between Amazon and Rivian. As of Jan. 5 the stock price sits at $91, slightly above its IPO price but 49% off of its post-IPO high.
The move by Amazon could simply be seen as the company spreading out its investment in EV across manufacturers to minimize its own risk from one EV maker. It could also be for other financial- or location-related reasons, but either way it lets Rivian know that Amazon is looking elsewhere for its needs.
Moving into 2022, Rivian is looking to begin construction on a new $5 billion plant in Georgia that will help escalate production numbers to an eventual 400,000 vehicles per year for that plant. But the plant isn't expected to be in production until sometime in 2024.
If the company can meet that timeline it will certainly help get more vehicles in the hands of customers, including delivery vans in the hands of Amazon by 2025. But if it fails to meet the timeline it could have a negative impact on the company achieving its goal of one million vehicles produced annually by 2030.
Month over Month Sales Growth Powers Xpeng forward
Unlike Rivian, which is headquartered in the U.S., Xpeng is centered in China, home to the worlds largest population. But a home base in China also brings growing government tech regulations, as evidenced by its being penalized $15,700 for unauthorized data capture involving facial recognition in showrooms using a 3rd party vendor software.
Within those showrooms Xpeng flaunts its P7 and P5 sedans as well as a long range SUV. The company is much further along in vehicle deliveries than Rivian, eclipsing 25,000 for the third quarter of 2021, and topped in Q4 with nearly 42,000 units sold. The quarterly total is representative of continued month over month sales records, highlighted by 16,000 units sold in December, bringing total sales to over 120,000 units.
The sequential growth led to quarterly year over year revenue growth of 187%. Gross margins also increased during Q3, jumping to 14% from 4.6% in 2020 for the same quarter, as well as sequential improvement over Q2.
Looking forward the company is planning to expand sales operations further into Europe -- it already sells in Norway -- including Sweden, Netherlands, and Denmark during 2022.Company President, Brian Gu, has also indicated that if demand presents itself Xpeng would look to have a manufacturing plant in Europe to support sales, which would also likely allow for a higher margin on sales within those areas.
Like Rivian, Xpeng stock experienced a fast and exciting climb upwards shortly after its IPO, going from around $20 in August 2020 to over $70, before settling in a range between $35 to $45. Since October 4 it has been on a gradual climb, from $34 to $46, producing a 35% gain during that timeframe.
But if analysts are accurate those gains have more room to grow. After it's Q3 results were announced it led to analysts Ming Hsun Lee (BofA) and Jeff Chung (Citi) to reiterate buy ratings with raised price targets to $66 and $92 respectively. The upper end of these targets represents a potential 100% gain from the current $46 per share price tag.
When the time is right
For investors with a long term strategy the EV market provides opportunity. And the opportunity to add Xpeng to a portfolio could be right now, providing strong upside. Meanwhile Rivian's relationship with Amazon should keep it on the radar for investors as well. But based on the recent stock price action, it's production obstacles, and a wandering eye by Amazon leads me to favor Xpeng more.
