Rivian vs. Hyliion Holdings: Which Electric Vehicle Stock Is a Better Buy?

The last few trading sessions have seen a significant decline in growth stocks. Investors are worried about rising inflation rates which in turn might lead to higher interest rates going forward. Further, the steep valuations of several companies on Wall Street have also contributed to the sell-off.

The electric vehicle (EV) industry has been one of the losers, with the Global X Autonomous & Electric Vehicles ETF (DRIV) down 4.7% in the past week.  Shares of EV manufacturers Rivian (RIVN) and Hyliion (HYLN) have seen even bigger losses, each down more than 13%.

Given the rapidly expanding addressable market for companies part of the EV space, the ongoing pullback could present a buying opportunity for long-term investors. With that in mind, if you’re considering buying an EV stock on the dip, today I’ll analyze both RIVN and HYLN to determine which is currently the better investment.

Is Rivian stock overvalued?

A stock that recently went public, Rivian was the first company to be valued at a market cap of over $100 billion without reporting any sales. However, the company is backed by Amazon (AMZN) which has also placed a pre-order of 100,000 delivery vans with Rivian. Further, Rivian has just begun deliveries of its passenger pickup truck called the R1T.

According to company CEO R.J. Scaringe, Rivian should manufacture one million vehicles by 2030 which is pretty impressive. In case the company meets its production targets and prices vehicles at an average of $75,000, its total sales will be $75 billion. 

Further, a profit margin of 10% will allow it to generate $7.5 billion in net income. But these might very well be the best-case scenario for Rivian given the increase in competition and entry of legacy players in the EV segment. EV leader Tesla surpassed the $100 billion market cap threshold last year when it delivered close to 500,000 vehicles. 

The road for long-term Rivian investors is likely to be bumpy and volatile considering the company’s outstretched valuations. It will have to keep beating Wall Street estimates consistently but remains extremely vulnerable if stock market sentiment turns bearish.

Should you buy Hyliion stock?

Hyliion designs, develops and sells electrified powertrain solutions for the commercial transportation industry. It also provides battery management systems for hybrid and fully electric vehicle applications.

In Q3 of 2021, Hyliion reported a loss of $26.6 million or $0.15 per share which was narrower than estimates of $0.23 per share. The company claimed that ongoing supply-chain disruptions have delayed launch dates for its heavy-truck powertrains called the Hypertruck ERX.

In addition to the powertrain, Hyliion is also developing a hybrid system that can be added to already existing trucks that run on internal combustion engines.

Hyliion has confirmed the first unit of the hybrid system called the Hybrid eX has just been shipped and it will recognize revenue in Q4 of 2021 from this vertical.

The verdict

Both Rivian and Hyliion are high-risk bets for investors right now if we account for the lack of earnings and revenue visibility surrounding these companies. The two companies may have to raise capital several times to expand their manufacturing capabilities and this may result in severe shareholder dilution in the upcoming decade.

But Rivian has a better growth profile and is backed by Amazon, one of the largest companies in the world, which will also provide it with the required financial flexibility, making it a better investment for the long-term investor at current multiples.

RIVN shares were trading at $101.54 per share on Monday morning, down $3.13 (-2.99%). Year-to-date, RIVN has gained 0.80%, versus a 22.65% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

More...