Volkswagen (OTCMKTS: VWAPY) has made it no secret that it is gunning for Tesla's market share in the electric vehicle (EV) sector and as the biggest auto manufacturer on the planet, it has the wherewithal to give Elon Musk's company a run for its money. Rolls-Royce (LSE: RR) has had a terrible 2020 thanks to the pandemic; the company recorded nearly a $6 billion loss but expects things to return to normal as the airline industry continues to recover. Which of these potential future leaders in electrification should you add to your portfolio?

Volkswagen: Bull vs Bear Arguments

Volkswagen has a strong foothold in the European market and expects EVs to account for 70% of its total car sales in the region and 50% in China and the U.S. by 2030. What about Tesla, you may ask? In December of last year, Volkswagen's ID.3 became the second-best-selling car in Europe (less than four months after launching), overtaking Tesla's spot with its Model 3. With its proprietary MEB platform -- which analysts say is completely cost-competitive with Tesla -- the company has an additional source of revenue that could bring in more than $23 billion by 2028 in licensing fees.

Last year, Volkswagen folded its Motorsport subsidiary into its EV division, reassigning all employees along with it. These staffers are no strangers to EV technology as they've worked on the company's electric racecar, the ID.R. Additionally, the company is opening 6 battery 'gigafactories' in Europe by 2030, helping it save money by developing its own battery tech. On that front, Volkswagen also plans on launching solid-state batteries in the near future, further driving recharging times and costs down. The company, which also owns brands like Audi, Ducati, Bentley, and Porsche, will be releasing 70 new EV models and 22 million vehicles in total in the next decade.

I think it's rather poetic that a company involved in an emissions scandal dubbed 'Dieselgate' will be the next big, if not biggest, player in the green EV sector. The potential fallout from this recent dishonor might still be fresh on investors' minds. Aside from this, the EV sector is rife with competition not only from new companies like NIO and Lucid Motors but old titans like Ford and General Motors.

Rolls-Royce: Bull vs Bear Arguments

Rolls-Royce recently completed development on its "Spirit of Innovation," a high-performance electric airplane, due to take its first flight this spring. The aircraft electrification market is expected to be valued at nearly $9 billion by 2030, and as one of the market leaders with a viable product already, Rolls-Royce stands to profit. The company's brand name and engineering expertise are well respected around the world and this helps build customer loyalty, which is important since its bread and butter isn't in sales but in servicing and maintenance.

To stave off financial ruin, Rolls-Royce initiated a $7 billion recapitalization plan, including a rights issue, a bond offering, and a new loan facility, in October to bolster investor confidence. Rolls-Royce isn't only involved in civil aviation, but defense as well, and this division actually grew underlying revenue by 4% to $4.7 billion and operating profit by 8% to $620 million last year. The company started this year with over $12 billion of liquidity and expects to turn cash flow positive in the second half of the year.

The travel industry is recovering at a slower pace than anticipated and Rolls-Royce expected this year's flying hours to be about 70% of 2019's but has since reduced that forecast to 55%. This could affect its free cash flow target of at least $1 billion. Furthermore, The Norwegian government recently blocked the company's sale of a maritime engine maker to a Russian company due to national security concerns.

Which stock is a better investment right now?

Rolls-Royce will certainly recover once travel resumes and will be cash flow positive again. However, I feel that Volkswagen is investing enough in infrastructure, supply chain, software development, and research to come out ahead of Tesla and other manufacturers in the EV space and is the safer investment right now.

A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.