The electric vehicle (EV) revolution could change the way the world moves, but most companies in the industry have experienced volatile valuation swings over the last year. Tesla (TSLA -3.36%) stock has skyrocketed by roughly 61% year to date, but its share price is still down by roughly 52% from its high. Meanwhile, Rivian (RIVN 3.59%) stock, up 3% in 2023, is approximately 89% below its peak.

Should investors put their money behind industry-leading Tesla, or would they be better off backing the smaller, more beaten-down Rivian? Two Motley Fool contributors have differing views on which of these EV stocks will deliver better returns from here. 

A Tesla Model S driving on a desert road.

Image source: Tesla.

Tesla is arguably the best-in-class EV stock

Parkev Tatevosian: Investor enthusiasm around electric vehicle stocks may have come down from the euphoria a couple of years ago, but it remains considerably high. If you're looking for an EV stock to buy, then Tesla could be your best choice. The company has done an excellent job of increasing revenue while demonstrating economies of scale.

Indeed, Tesla's revenue has exploded from $4 billion in 2015 to $81.5 billion in 2022. Its success arguably led several competitors to enter the fray -- especially after Tesla demonstrated the profit potential of manufacturing EVs at scale. In 2015, Tesla's operating income was negative $717 million. By 2022, that figure had turned positive and risen to $13.8 billion. Admittedly, the next few years will not be as easy for Tesla as those previous years were.  

Rising competition will make things meaningfully more challenging for Tesla. Sales will be harder to come by as consumers have more EV options. Meanwhile, securing materials will be more costly as competitors bid up commodity prices. Still, those headwinds could already be priced into Tesla's stock, which is trading at its lowest valuation in years when measured by its price-to-earnings ratio of 57.5. For those reasons, if I were picking an EV stock to buy, Tesla would be at the top of my list

Rivian is down, but it's not out

Keith NoonanRivian shareholders have had a tough go of things since the company's initial public offering late in 2021. The stock lost ground during the market's broader pivot away from growth stocks and in conjunction with concerns that economic conditions will create a tougher operating backdrop for auto companies. 

Investors were also dismayed by Ford's decision to divest from the company, and by the end of the EV upstart's short-lived partnership with Mercedes. Additionally, the 24,337 vehicles that the company produced in 2022 fell short of its target of 25,000.

But it doesn't look like the wheels are falling off the business. While Rivian's losses have mounted as it has scaled up its production, it remains well capitalized. Its cash position of roughly $18.1 billion at the end of the third quarter far exceeded its total liabilities of roughly $2.8 billion at that time. With the stock down massively over the last year, Rivian is priced at levels that leave room for explosive upside. 

While Tesla is already actually posting profits and Rivian is years away from breaking even, I think that the latter company's smaller valuation and underappreciated business could set the stage for it to see much stronger returns.

With a market cap of roughly $18.6 billion, Rivian is valued at approximately 3.6 times this year's expected sales. That's significantly below Tesla's forward price-to-sales multiple of 6.4. 

RIVN PS Ratio (Forward) Chart
Data by YCharts.

Of course, the fact that Tesla is already posting significant profits is a key distinction between these two companies, but I think the disparity between their price-to-sales ratios indicates that Rivian is undervalued. The company should continue to grow its sales at a much faster clip than the EV leader over the next five years, and its ample cash position will allow it to ride out its money-losing period of scaling up operations. Rivian's business outlook is admittedly much less clear than Tesla's, but I think the smaller company's risk-reward profile looks more appealing. 

Which stock is the better buy?

For investors seeking a more established business, Tesla is clearly the better buy. The company is the clear leader in the EV space, and that it's already serving up profits at scale makes it a much less risky investment than Rivian in many respects. 

On the other hand, those seeking the potential for more explosive returns may prefer to put their money behind the smaller EV player. While Rivian is not profitable yet, it is scaling up rapidly and has plenty of funds to use in the meantime, and its much smaller market capitalization means that the company may have an easier time posting multibagger returns from here.