The past few months have been challenging for Tesla(NASDAQ: TSLA) shareholders. Shares of the electric vehicle (EV) giant are down roughly 30% from their December peak.
This sharp correction has rippled across other major EV stocks as well. Rivian(NASDAQ: RIVN), for example, has also seen its shares lose roughly one-third of their value since late December.
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If you’re looking to buy growth stocks with monster upside potential at a discount, this looks like your chance to add both of those automakers to your portfolio.
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1. Rivian has several major growth catalysts on the way
After their slump, Rivian shares look like they have growth potential. Two notable catalysts could arrive in force this year.
The first will be the launch of its R2 SUV. SUVs are one of the most popular categories of vehicles in the world today, and they’ve made major market share gains in recent years. More than half of U.S. auto sales are now SUVs.
Rivian expects to begin deliveries of the R2 to employees this month, with external customer deliveries scheduled to ramp up over the summer.
The potential here should not be discounted. Tesla’s Model Y has been one of the best-selling cars in the world for several years straight, and it accounts for a majority of Tesla’s auto sales. In many ways, the Model Y paved the way for Tesla to become a $1 trillion business.
The Model Y has proven more popular than the Model 3 sedan despite its slightly higher price. The Model Y is a crossover, somewhat akin to an SUV form factor. SUVs and crossovers are way more popular than sedans right now, and have been for years.
The Rivian R2 is expected to have a base price of around $45,000 — roughly similar to the Tesla Model Y. Yet unlike the Model Y, the R2 is a full-sized SUV. The new vehicle will be its first model priced for the mass-market consumer, and it’s expected to push Rivian into a new multiyear growth phase.
The second growth catalyst will be the company’s efforts in artificial intelligence (AI). It’s injecting more AI into its factory floor, in-vehicle driving experiences, and into its autonomous driving program. The market applauded its AI-related plans after they were announced in December at the company’s first “Autonomy and AI Day.” But since then, those gains have been erased.
I like Rivian’s AI ambitions. But as we’ll see next, Tesla takes the cake when it comes to AI potential.
2. Tesla stock still has monster upside potential
I’m not very excited about Tesla’s valuation, even after the correction. Shares trade at roughly 13 times sales. Rivian stock, for comparison, trades closer to just 3 times sales.
But there’s a reason Tesla trades at such a steep premium. Artificial intelligence is a competitive market, filled with big tech firms that have deep pockets. Tesla is one of the only automakers in the world that can not only pony up $2 billion to invest in AI start-ups like xAI, but also shift a large amount of its $20 billion capital expenditure budget toward AI innovation.
It’s not just financial firepower that it can deploy, but also existing infrastructure.
“Tesla is beginning to enjoy three key competitive advantages — vertically integrated manufacturing, data, and cost per mile,” asserts a recent research report from Ark Invest. That is, the company already has factories in operation that could be deployed to produce millions of autonomous vehicles — an advantage few of its EV-centric competitors can match. This existing scale also gives it access to a massive volume of real-world driving data — another advantage that even promising EV companies like Rivian lack at scale.
With the robotaxi market alone potentially worth up to $10 trillion globally, there’s still plenty of upside left in Tesla stock. I’d love to be able to buy its shares at a cheaper valuation, but after a nearly 30% price reduction in recent months, this may prove the best entry point remaining for prospective Tesla investors.
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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.
