NEW YORK, NY - SEPTEMBER 12: Logos for Chinese electric car company NIO are displayed at a trading ... [+]
Premium electric car maker Nio (NYSE: NIO), often touted as the Tesla (NASDAQ: TSLA) of China, has seen its stock jump 85% year-to-date, following the company’s Q1 earnings beat and improving automotive demand in China, following the containment of the Covid-19 pandemic in the country. Tesla has seen its stock fare better, rallying by over 130% year-to-date, driven by upbeat sales data in China and likely a belief that the disruption caused by the coronavirus could make the shift to EVs harder for mainstream automakers, widening Tesla’s lead in the space.
While Nio is in the earlier phases of growth with revenue expanding 56% last year and growth likely to accelerate in 2020, Tesla sales grew by just 15% last year and could potentially slow in 2020. However, Nio trades at a lower multiple of about 6x trailing revenues, compared to Tesla which trades at 7x. So does this make Nio the better bet compared to Tesla? Our analysis How Does Nio Compare With Tesla? has more underlying numbers, parts of which are summarized below.
How Do The Core Businesses For Nio And Tesla Compare?
Nio, which was founded in 2014, currently offers two premium electric SUVs ES8 and ES6, which are priced starting at about $51k. The company is also innovating in the self-driving technology space and offers a battery swap service. Nio delivered 20,565 cars last year, marking an 81% year-over-year increase. However, the company’s financials remain tough, with net losses exceeding its revenues ($1.1 billion revenue, $1.6 billion net loss in 2019), and gross margins remaining negative, although it indicated that the metric could turn positive in the coming quarters. Nio has had to periodically raise capital to survive, and its fortunes are also heavily tied to the Chinese government, which could have more say in Nio’s operations after it invested about $1 billion in the company in April.
Tesla, on the other hand, is relatively more mature and is expected to turn a profit for 2020. Total deliveries grew 50% to 368k cars in 2019, although we expect growth to slow in 2020. The company’s line-up is also more diversified compared to Nio, with its lowest-priced Model 3 starting at $38k. Tesla’s business model is also looking increasingly viable, with gross margins standing at over 20% and the company’s risk of failure is now low. Tesla also has a competitive advantage in the self-driving software space, given its large base of vehicles on the road and also has among the lowest battery costs in the industry. (How Tesla’s Battery Costs Impact Its Gross Margins).
Tesla A Safer Bet?
Overall, while Nio’s faster recent growth and slightly lower valuation multiple make a case for its stock, it is still a much riskier investment compared to Tesla, given its high cash burn rate, and competition in its bread-and-butter Chinese market. While Tesla stock looks expensive, the company’s well-established and desirable brand, its industry-leading tech and software differentiation, and fast-improving profitability should provide investors better downside protection.
Is this a good time to jump into Tesla stock? Yes - especially if you believe in this one important Tesla metric: Tesla’s time horizon. On the flip side, for a more balanced, risk-adjusted view see our analysis Tesla Valuation: Jump Into Tesla, Wait, Or Get Out?
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