Needing to make a quick investment decision—should $50K go into NIO or Rivian?

Take two revolutionary automotive companies, roughly similar in size, with similar amounts of net cash on the balance sheet, but neither one profitable, and both burning cash at phenomenal rates. How would you go about deciding which of these two companies to invest in?

Or should you invest in either one at all?

Recently I was approached with the question from an investor, possessing $50,000 and looking to invest it in an electric car company. Which car companies in particular, you ask? Well, he’s actually looking at two car stocks hailing from opposite ends of the world: China’s Nio (NYSE: NIO) and America’s Rivian Automotive (Nasdaq: RIVN).

Not exactly Neo from the Matrix

Let’s first examine Nio. Much like “Neo” from the Matrix movies, Nio the car company is a fast mover, growing sales from just over $1 billion give years ago to $9 billion over the last 12 months. Unlike its cineplex homonym, though, Nio the car company may not be fast enough to evade the trouble coming its way.

The more electric cars Nio sells, you see, the more money this company seems to lose. Despite scaling production phenomenally over the last five years (unit sales grew 45% last quarter, and 73% in December alone) losses over the last five years have roughly doubled to about $3 billion annually.

Nio doesn’t update investors regularly on its cash flow, but the company burned $2.2 billion in cash in 2023, up from $1.6 billion burnt in 2022. The company’s CFO claimed free cash flow turned positive in Q3 of 2024, implying it was probably negative up until then.  Still, with $5.1 billion in the bank (versus $4.6 billion in debt), the company has a couple of years before it runs out of money.

Rivian’s rebuttal

So things don’t look great for Nio right now. But what about Rivian?

Well, the U.S. maker of luxury electric pickup trucks, SUVs, and delivery vans for Amazon and others is actually in a pretty similar state to Nio. Rivian’s recent production and deliveries update was on target, with Nio producing just under 50,000 vehicles in 2024,and delivering just over 51,000. (Nio had some trucks in backlog, which allowed it to deliver more than it produced).

Despite hitting its numbers, Rivian’s growth rate has slowed dramatically in recent quarters. The first nine months of 2024 saw Rivian grow sales less than 4% in comparison to 2023. Earnings, too, were mostly unchanged, with Rivian reporting $4 billion in losses over this same period, versus $3.9 billion in losses in the first nine months of 2023.

Cash burn improved at the company, year over year. Still, Rivian burned $3.7 billion in the first three quarters of 2024, which equates to about a $5 billion annual burn rate. With $6.7 billion in the bank (and $6 billion in debt), Rivian’s got about five more quarters before it will run out of money and need another cash injection.

So what should you buy, Nio stock or Rivian?

Neither Nio nor Rivian has a whole lot to recommend them to value investors. Neither stock is making money. Both stocks are at risk of running out of money if business doesn’t improve. I personally don’t see a compelling reason to invest in either one of them.

That said, twist my arm and demand that I pick and I’d probably choose Nio. For one thing, Nio’s burning less cash than Rivian. As a result, Nio still has a couple of years left to figure out how to operate its business profitably. Rivian’s driving closer to the cliff edge, despite making fabulous vehicles, it needs to start making money on them.

For another, I’m still intrigued by Nio’s battery-switching technology (as opposed to recharging batteries), which seems to me a novel twist on the EV equation, and sets it apart from a lot of its rivals in the China market. Add in the fact that Nio is simply growing its business faster than Rivian, and that it did just report positive free cash flow, even if only for one quarter?

If I were a betting man, I’d say Nio has a better chance of surviving the electric car wars, than Rivian does.

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