Better Electric Car Stock to Buy for 2026 and Beyond: Tesla vs. Rivian

It's an interesting time for electric vehicle stocks. In addition to the macroeconomic factors affecting all automotive companies, particularly an interest rate environment that makes affordability difficult, there are some electric-car specific headwinds, including intensifying competition and the Sept. 30 expiration of the $7,500 electric vehicle credit -- a major incentive for electric cars. Of course, there are some reasons to be bullish, too. There are the increasing capabilities of software in electric cars and more attractive pricing relative to performance. Tesla (NASDAQ: TSLA), for instance, recently released lower-cost models. Similarly, Rivian (NASDAQ: RIVN) has plans to bring to market R2 -- the company's most affordable vehicle yet -- in the first half of next year.

With all of this in mind, it's a good time to look at the stocks of two of the industry's leaders in the space. Of course, we're talking about none other than Tesla and Rivian -- two pure-plays that give investors significant exposure to the important industry. The two companies couldn't be more different. Tesla is very profitable and has a war chest of cash. But investors have to pay up for it. Its market capitalization isn't too far from $1.5 trillion as of this writing. Rivian is a much smaller company and is earlier in its roadmap. Its market cap sits at just $16 billion as of this writing.

So, which stock is the better buy?

Tesla: established and diversified

Tesla doesn't need much introduction. The company primarily makes money from sales of its high-volume vehicles, Model Y and Model 3. But it has a fast-growing energy storage business, too. Looking out over the long haul, the company aims to grow higher-margin revenue streams, including its "Self-Driving (Supervised)" software and its autonomous ride-sharing service called Robotaxi, which is still just a pilot program. These diversified sources of revenue are a key aspect of the bull case for the stock.

The company is delivering cars at an annualized run rate of nearly 2 million -- and that could grow quite a bit in 2026 with the help of the company's recently refreshed Model Y design and new, cheaper trims of its Model Y and Model 3 that make its vehicles accessible to a broader audience.

As an established automotive company, Tesla boasts a healthy balance sheet with about $37 billion of cash and investments.

Rivian: early and risky

With management guiding for full-year deliveries of just 41,500 to 43,500 units, and the company burning through cash, Rivian is clearly in a totally different phase than Tesla is.

Indeed, while Tesla has reached a point of being able to fund itself, Rivian is still raising outside cash. Rivian received a $1 billion equity investment from Volkswagen this summer. Additionally, Volkswagen committed to investing up to $4 billion more.

Of course, Rivian needs the cash. With cash provided by operating activities for Q2 coming in at $64 million and capital expenditures totaling $462 million, the company's free cash flow was negative $398 million.

But with its new, more affordable vehicle (R2) due next year, investors are hoping this will be the company's next leg of growth. The manufacturing equipment for the vehicle, for example, is designed to more than quadruple the company's production volume.

Both companies are working to make electric vehicles more affordable. But their underlying businesses couldn't be more different. Tesla pairs an at-scale vehicle business with a fast-growing and profitable energy business and credible software optionality. The stock's valuation (shares trade at about 254 times earnings as of this writing) assumes massive growth from here. Still, extraordinary growth from Tesla is arguably a more plausible scenario than Rivian going from an upstart company bleeding cash to becoming a profitable automaker. Rivian has a compelling product and is improving operations, yet its cash burn and late start compared to Tesla make its future more uncertain -- and probably riskier.

Overall, Tesla stock is probably the better buy. Its combination of diversified profit drivers and optionality in self-driving software and a Robotaxi network ultimately a more attractive value proposition, even if investors have to pay a high valuation to get in on the growth story. Rivian may succeed over time. But it could take longer than expected and the outcome may not be as profitable as investors hope.

Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.