Tesla Vs. NIO: Which EV Stock Is The Better Buy?

Tesla Vs. NIO: Which EV Stock Is The Better Buy?

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Tesla, Inc. ( TSLA ) is the world’s leading EV maker, while NIO Inc. ( NIO ) is one of the three leading pure-play NEV makers in China. Notably, both companies were highlighted recently by Ford ( F ) CEO Jim Farley as its keen competitors in the EV market. He emphasized (edited): ” Ford will go deeper because we know our competition is NIO and Tesla , and we have to beat them, not match them.” Furthermore, it wasn’t the first time Farley mentioned both companies. He also complimented both companies in a January appearance on Yahoo Finance. He articulated (edited): Well, the companies that I think about that I admire because of their commitment – and frankly, the hard work they did to earn their reputation – are companies like NIO and Tesla . They’ve been at this a long time. They engineer their vehicles differently. I’m most respectful of Tesla’s profitability. They’re now making more than $10K a vehicle in their second quarter earnings.” ( Yahoo Finance ) Therefore, while NIO is a much smaller and unprofitable rival to Tesla currently, investors should not write NIO off so quickly. Nonetheless, we also don’t think Tesla’s leadership could be threatened by the rise of NIO in the near term. Nevertheless, we discuss how investors can consider owning both companies in their portfolios and unveil our preferred buy. NIO and Tesla Stock Key Metrics

TSLA stock Vs. NIO stock EV/NTM valuation trend (TIKR) Readers can glean from the above chart and observe that TSLA stock is currently valued at a much higher valuation than NIO stock. TSLA stock’s NTM revenue multiple is 10.1x, compared to NIO stock’s multiple of 3.4x. However, the speculative fervor in NIO stock saw its valuation even surpassing Tesla stock between late 2020 and early 2021. Keen EV investors should have known that NIO was overvalued back then, given its lack of profitability and scale.

Therefore, investors shouldn’t be surprised that NIO stock has collapsed astonishingly since its January 2021 highs. Nonetheless, NIO investors could also point out the headwinds concerning its potential delisting and the market rotation out of Chinese stocks. Therefore, investors in TSLA stock have not experienced the value compression experienced by NIO investors. TSLA stock Vs. NIO stock NTM FCF yield % (TIKR) However, both companies have alarmingly weak FCF yields. As growth investors, we can accept it if such companies have not been optimized for FCF profitability yet. But, the margin of error is lesser, and investors need to make sure that they have high conviction over such stocks. For example, TSLA stock has an NTM FCF yield of 0.94%. However, NIO stock’s FCF yield is in the red. Therefore, if you invest in NIO, you must observe its path to profitability as it scales. Is NIO or Tesla Performing Better?

Tesla EBIT margins & FCF margins % (S&P Capital IQ) NIO EBIT margins % (TIKR) It should be apparent that Tesla is a solidly profitable EV maker, while NIO is still unprofitable. Nevertheless, NIO has made tremendous progress towards profitability as it scales. However, we don’t expect the company to turn profitable in the near term. Furthermore, the company is still in a rapid global expansion phase. It’s also investing aggressively to build its battery swap infrastructure, charging infrastructure, and retail footprint.

If we base our analysis on their profitability, it’s straightforward that Tesla could be the safer bet here. In contrast, NIO’s focus on battery swap to differentiate itself from its peers will continue to impinge on its near-term profitability. Is NIO or Tesla Stock A Good Long-Term Pick?

Tesla deliveries by FY (Company filings) NIO deliveries by month (Company filings) Tesla just reported its total deliveries from Giga Shanghai . Its February deliveries fell MoM to 56.5K vehicles, from 59.8K in January. However, it still represented a remarkable 209% YoY increase, validating the incredible run rate of its Shanghai plant. We are confident that Giga Shanghai’s run rate could approach 1M moving forward with the necessary upgrades. It’s already close to a run rate of 800K this year.

Furthermore, Tesla is also considering building a new plant in Shanghai that could increase its production capacity in China to 2M moving forward. Coupled with its recent Berlin approval, which could eventually yield 500K units per year, Tesla has been rapidly ramping its production capacity.

The company has also been able to mitigate the chip shortages that have beset its legacy peers. Berlin could […]

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