Tesla has proven to be one of the best investments of the past 10 years. Over that time period, sales by the ground-breaking electric vehicle (EV) maker have soared nearly 2,900% even as its stock price has vaulted by nearly 1,400% -- substantially enriching its early investors.
But the electric vehicle industry remains in its infancy, and so it pays to seek out current opportunities. For those looking to invest in the next Tesla, there's one up-and-coming electric car stock you need to be aware of now: Rivian Automotive (NASDAQ: RIVN). Here's why.
More risk can create more reward
You're likely well aware of the trade-off between risk and reward. But in practice, this trade-off is harder to determine. After all, there's nothing guaranteeing you a higher potential payoff for taking on extra risk. It's important, then, to stack the odds in your favor. That's exactly what investors are getting with Rivian Automotive stock right now.
Let's rewind time and look at what Tesla was up to nearly a decade ago, when its sales base was only around $5 billion. At that time, the company only had two high-end luxury models for sale: the Roadster and the Model S. Its first crossover, the Model X -- also a luxury vehicle priced above $100,000 -- would debut soon, but the market was growing increasingly wary that Tesla would ever be able to crack the mass market in any major way.
In 2014, Tesla shares were priced around 10 times sales. In 2016, that valuation slipped to 8 times sales. And by 2020, Tesla shares were priced below 2 times sales. CEO Elon Musk would later reveal that the company was "about a month" away from bankruptcy.
Would you have invested in Tesla right then? Without knowing the future, most investors would have stayed far away. Yet this was one of the best times in Tesla's history to jump in. As sales from its mass market vehicles -- the Model Y and Model 3 -- began to gain traction, Tesla's revenue more than tripled from 2020 through 2024, from $30 billion to more than $90 billion. Shares have soared more than 1,000% in value over the past five years due to the success of these two vehicles.
Right now, Rivian is about to follow the same trajectory. Earlier this year, it announced three new mass market models: the R2, R3, and R3X. Similar to what Tesla used to offer, Rivian only currently has a couple of high-end luxury vehicles for sale, the R1S and R1T, both of which cost around $100,000. The R2, R3, and R3X, meanwhile, are expected to be priced under $50,000 -- similar to the Model Y and Model 3.
If these new models have the success that Tesla's mass market vehicles had, expect Rivian's sales base to soar. There's just one problem: These vehicles aren't expected to be delivered until 2026 at the earliest. Some versions may not hit the road until 2027 or 2028.
Suffice to say, the market remains skeptical, just as it was before Tesla's major sales increase. Rivian stock is now priced under 2 times sales -- a 75% valuation discount to Tesla -- despite trading at a premium early on in its trading history. A lot can happen over the next few years, and Rivian will require billions in new capital to get to where it wants to be.
But if you're willing to take on this extra risk and remain patient, there could be a sizable payday a few years down the road.
Use this strategy to profit with Rivian stock
Because there won't be many hard catalysts for Rivian until its mass market vehicles hit the roads, expect the share price to be very volatile, reacting to small shifts in investor sentiment, and of course broader overall market swings.
For this reason, the best strategy for investing in Rivian stock is likely to employ dollar-cost averaging. Instead of putting $1,000 to work right away, for instance, you may want to split that sum into 10 $100 monthly investments. That way, your portfolio takes advantage of any temporary downswings in the share price.
But even if you employ dollar-cost averaging, the biggest skill you need to make money with Rivian stock will be patience. The market isn't willing to value the company higher until it sees results. But that hesitancy is what's creating today's buying opportunity. You'll just need to remain patient, willing to ride out or even take advantage of volatility in the stock price.
Should you invest $1,000 in Rivian Automotive right now?
Before you buy stock in Rivian Automotive, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rivian Automotive wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $845,679!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 14, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
1 No-Brainer Electric Vehicle (EV) Stock to Buy Right Now (Hint: It's Not Tesla) was originally published by The Motley Fool