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If you have been following the electric vehicle (EV) space, you likely will have come across the phrase “next Tesla” several times. From labeling multiple EV models as “Tesla killers” to coming up with catchy monikers like “Tesla of China” and “Tesla of trucking” for NIO (NIO) and Nikola (NKLA), respectively, markets have been on an almost unending wait for the next Tesla (TSLA).
In reality, though, Nikola now trades just above $1, while Lucid Motors (LCID) - which was also once hailed as a Tesla killer - is struggling to sell as many cars as it can produce, and is almost a penny stock now. While the Peter Rawlinson-led company could still be a multi-bagger, I would exclude it from the list of potential Tesla killers.
To be sure, China-based BYD (BYDDY) has already surpassed Tesla in terms of total new energy vehicle (NEV) deliveries, and looks on track to become the largest seller of battery electric cars. Tesla CEO Elon Musk – who had in 2011 ridiculed the possibility of BYD being a competitor to Tesla – admitted that things have changed, and termed BYD cars as “highly competitive these days" in a tweet earlier this year
Which Companies Could Be the Next Tesla?
Since BYD is already the next Tesla in some ways, I would list Xpeng Motors (XPEV) and Rivian (RIVN) as the top 2 contenders to be the next Tesla.
Incidentally, earlier this year, Musk admitted that a Chinese company could be the next Tesla. The world’s richest person said during Tesla’s Q4 2022 earnings call, “They work the hardest and they work the smartest. That's - so a lot of respect for the China car companies that we're competing against. And so, if I would have guessed, there are probably some companies out of China as the most likely to be second to Tesla.”
Why Xpeng Motors Is a Good Contender To Be the Next Tesla
In July, Volkswagen took a stake in Xpeng Motors, and as part of the deal agreed to jointly develop two EV models for the Chinese market. The investment was a testimony not only to Xpeng Motor’s manufacturing abilities, but also its R&D and self-driving prowess.
Xpeng has advanced autonomous driving operations, and is testing the technology in several Chinese cities, including Beijing - with plans to roll out the service to all Chinese cities by the end of 2024. The company’s autonomous driving segment received a boost when it took over Didi’s autonomous driving business in August, and said that as part of the agreement, it would launch a new EV brand under the “MONA” project - which will produce EVs priced in the ballpark of $20,000.
In my view, Didi choosing Xpeng Motors from the vast pool of Chinese EV companies was yet another stamp of approval for Xpeng - this time, from the largest Chinese ride-hailing company.
Xpeng’s G6 SUV has received a good response in China, and with the partnerships with Volkswagen (VWAGY) and Didi, Xpeng Motors should improve its topline as well as margins significantly in 2024.
Overall, I believe Xpeng Motors is one Chinese EV company that has a good shot at becoming the next Tesla.
Evercore ISI Believes Rivian Could Join the Ranks of TSLA and BYD
Earlier this month, Evercore ISI analyst Chris McNally upgraded Rivian stock to an outperform, while adding that the company could be the next Tesla. McNally listed three criteria for EV companies – “brand,” “scale economics” and “vertical integration” – and stressed that, apart from Tesla and BYD, only Rivian meets all three.
McNally is not alone in his praise for Rivian. Earlier this year, Barclays said that in the startup EV universe, it could identify only Rivian as being close to Tesla. Overall, Wall Street analysts rate Rivian's stock as a “Moderate Buy.”
What Makes Rivian an Attractive EV Bet?
Like Tesla, Rivian has a powerful product proposition, and its R1T pickup won MotorTrend's prestigious Truck of the Year 2022 award. MotorTrend was all praise for the model, and almost bordered on flattery when it said, “Rivian re-examined what a modern pickup could be and the result is the most remarkable truck MotorTrend has ever driven, making it arguably the worthiest recipient of the ‘Golden Calipers’ in recent history.”
Following Tesla's footsteps, Rivian has invested in its plants, and while the manufacturing facility in Normal, Illinois is functional, it is building its next mega plant in Georgia. It also gearing up to launch its low-cost platform R2 in 2026. The company has a strong balance sheet and is backed by Amazon (AMZN), which has also placed an order of up to 100,000 electric delivery vans with Rivian.
I believe that a strong balance sheet, a compelling product proposition and premium brand positioning, and a focus on manufacturing and a vertically integrated supply chain make Rivian a strong contender to be the next Tesla.
On the date of publication, Mohit Oberoi had a position in: NIO , XPEV , RIVN , AMZN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
