The global transportation sector is in the midst of a transition that may prove to be as fundamental and astounding as the early-20th century shift from horse-drawn carriages to internal combustion vehicles. Today’s world is witnessing an incipient shift from the modern internal combustion engine cars that we all know to cleaner-running electric vehicles (EVs). The change is only just starting; we don’t know yet exactly how it will shake out.
Some recent snapshots make it clear that this transitional phase remains uncertain. Last year, EV makers went all-in, prioritizing EVs on the assembly lines, but consumers weren’t necessarily all there. EV stocks saw declines in the year, as supply rose faster than demand and EVs backed up on the dealer lots. EV sales grew 40% last year, but major auto producers are cutting back on their EV investments to avoid expanding the backlog of unsold vehicles. EVs remain expensive, but improvements in technology – especially battery technology – promise to ease those high prices.
Covering the industry changes for Piper Sandler, 5-star analyst Alexander Potter notes, “Disruption is hard. For 20th century automakers, we favor companies that have truly global (not just regional) scale, with >10% EBIT margin.”
Putting his thoughts into concrete stock recommendations, Potter goes on to look at Rivian (NASDAQ:RIVN), a leading pure-play EV company, and Ford (NYSE:F), a venerable Detroit name that has bet big on electrics. The analyst, who is rated among the top 5% of his peers by TipRanks, weighs both shares and comes down with a clear choice as to which is the superior EV stock to buy. Let’s take a closer look.
Rivian Automotive
The first stock we’ll look at is Rivian Automotive, one of the many pure-play EV makers to pop up in the early 21st century. The company was founded in 2009, and has worked on designing innovative EVs fully integrated with modern digital technologies. The company settled on a groundbreaking chassis design, a ‘skateboard’ that could form the base for a wide range of EV models and designs.
Rivian’s skateboard is a flat platform with four wheels, with fittings pre-installed to allow for the use of a variety of electric motors, battery packs, control systems, and body styles. There is no single drive train; rather, each wheel has an independent electric motor, a system that brings benefits in the form of reduced weight and enhanced performance. It’s an EV platform designed for maximum flexibility, from its very beginning.
On the production side, Rivian started bringing its Normal, Illinois production factory fully online last year. The company reported success on the assembly lines for 2023, with 57,232 vehicles manufactured and 50,122 delivered. Last year’s full-year production numbers beat the company’s originally published 2023 guidance by more than 3,000 cars. As of December 31, 2023, Rivian had built approximately 82,500 vehicles.
The 4Q23 production numbers show that Rivian’s vehicle production is speeding up. Q4 accounted for more than 30% of the year’s total output; Rivian produced 17,541 vehicles in 4Q23, and delivered 13,972. The Q4 deliveries were up 73% year-over-year. Full-year deliveries were up 147%. Looking ahead, Rivian has set 2024 production guidance at 57,000 vehicles, the same as last year.
Rivian is not resting on its current laurels. The company earlier this month revealed its next models, the R2 and R3 electric SUV lines. These vehicles are smaller than the current R1 models, and target a wider audience, featuring lower price points but retaining the vehicles’ SUV performance characteristics. The new models will feature two battery pack options, the larger of which is said to boast a 300-mile range. The company is already seeing a surge of interest in the new vehicles, with tens of thousands of pre-orders for the R2. Rivian expects to have R2s available for delivery in 1H26, with R3s to be made available shortly afterwards.
Shares in Rivian are down sharply this year, by more than 52%. A large part of that loss came after the company’s 4Q23 earnings report, which showed a top line of $1.32 billion for the quarter, up 99% y/y and $60 million ahead of the forecast. The bottom line, however, was another quarterly loss for the company, of $1.73 per share. This loss was 41 cents per share deeper than had been expected.
The drop in share price did not dissuade Piper Sandler’s Alexander Potter from recommending the stock. The 5-star analyst upgraded his view of the stock, citing Rivian’s strong pre-orders for R2 vehicles and management’s decision to build the car in an existing plant as reasons for optimism.
“After watching last week’s live stream, re-assessing our capex outlook, and considering the post-Q4 selloff, we feel compelled to upgrade RIVN from Neutral to Overweight. Make no mistake: buying RIVN is risky and a botched midyear re-tooling effort could yet surprise investors negatively. But the newly-unveiled R2 SUV generated 68k orders in less than 24 hours, and we think its sibling, the R3, could be one of the most compelling designs on the market when it is released. This excitement around new products, coupled with a plan to delay capex and build R2 in an existing plant, should prompt investors to adopt a more bullish stance,” Potter opined.
These comments back up Potter’s new Overweight (i.e. Buy) rating on RIVN shares, and his $21 price target implies an 87% upside potential for the coming year. (To watch Potter’s track record, click here)
Overall, Wall Street is willing to buy in on Rivian, but is less bullish than Potter. The stock has a Moderate Buy consensus rating, based on 24 recent analyst reviews that break down to 13 Buys, 8 Holds, and 3 Sells. The shares have a current trading price of $11.27 and their $18.24 average target price suggests the stock will gain 62% by the end of this year. (See Rivian stock forecast)
Ford Motor
Next up is Ford Motor, a classic name from the Motor City. The company is still based in its long-time hometown of Dearborn, Michigan, just outside of Detroit, and built its long-term viability on the internal combustion engine vehicle. The company founder, Henry Ford, developed the modern factory assembly line, and used it to bring prices down – until his famous Model T was available for just under $300 in the late 1920s. Today, Ford is best known for some of its legendary cars: the Ford Mustang, and its market-leading F-series light- and heavy-duty trucks. The US car market has long been known for its lean towards pickups and SUVs, and Ford’s F-series is the perennial best seller in its niche – and in the US car market, generally.
But smart companies adapt to changing times, and Ford has made a large-scale investment in electric vehicles, even producing electric versions of the Mustang and the F-150. The company’s pure-play electric vehicle lines saw sales grow by almost 81% year-over-year in the February 2024 company sales update; hybrid vehicle sales were up 31.5%, while the traditional gasoline cars saw sales grow by only 7.5%. Raw numbers, however, show that EVs are still just a fraction of Ford’s business; the company sold 174,192 vehicles in February 2024, of which 18,413 were battery or hybrid electric, making up 10.5% of the total even after the year-over-year surge in sales.
A look into the company’s financial results shows that EVs are still a money loser for Ford. The company reported $46 billion in total revenue for the fourth quarter of 2023 – but its Model e division, in charge of EVs, posted a quarterly loss of $1.57 billion. The Model e loss was $4.7 billion for the full year 2023.
On a positive note for the company’s EVs, Ford’s Mustang Mach-E and F-150 Lightning both saw sales volumes increase year-over-year. The Lightning is the best-selling electric pickup in the nation, riding high on the F-150 name, and the Mustang Mach-E SUV is said to be the third most-popular EV, of any type, in the US market.
At the bottom line, Ford’s non-GAAP EPS for 4Q23 came to 29 cents. This was down from the 51 cents reported in the prior-year quarter, and beat the forecast by 17 cents per share. For the full year, however, the company’s non-GAAP earnings were up year-over-year, rising from $1.88 in 2022 to $2.01 in 2023.
While Ford has obvious strengths, analyst Potter is worried by what he sees here. He starts his note on the stock by pointing out some of Ford’s difficulties: “Ford has impressive investment characteristics that, in our view, are balanced against EV risks. Like peers, Ford hasn’t kept pace with Tesla on EV costs; the problem is structural (unsolvable?). Ford admits its EV cost disadvantage, but the goalposts are moving too quickly for Ford to respond. We’d be surprised if Ford navigates the EV transition without facing a period of unprofitability.”
Potter goes on to explain that Ford has a good position now, but that might not last through a global shift to EVs, writing, “If global auto production never changed – and if Ford perpetually maintained its 2024 pricing, market share, and margins – this would equate to ~$6.5B in automotive free cash flow, every year, into perpetuity. Using a 10.7% WACC, this cash flow stream would be worth $21/share, after adding Ford’s net cash of ~$4B and $3/share for the FinCo. That’s 75% higher than the current price. Needless to say, until the EV transition is complete, we think investors will doubt Ford’s ability to sustain this level of cash flow.”
Overall, Potter puts a Neutral (i.e. Hold) rating on F shares, along with a price target of $13 – showing that he sees only a 7% gain in the year ahead. (To watch Potter’s track record, click here)
Wall Street generally appears in-line with the Piper Sandler view here; the analyst consensus on Ford is a Hold, based on 5 Buys, 5 Holds, and 4 Sells. The shares are priced at $12.10 and their $13.48 average price target suggests the stock will gain ~11% over the next 12 months. (See Ford’s stock forecast)
For top-rated analyst Alexander Potter, the choice is clear: Rivian is the superior EV stock to Buy, and investors should be willing to shoulder the risks involved.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
