Nio – the premium Chinese electric vehicle manufacturer – reported its Q3 2020 results on Tuesday, posting a smaller than expected quarterly loss, driven by record deliveries and higher margins. While Revenues rose by 22% sequentially to RMB 4.53 billion (about $667 million), gross margins expanded by about 480 basis points to 12.9% driven by lower material cost and better manufacturing efficiency. Nio continues to benefit from strong demand and incentives for EVs in China, guiding that it could deliver between 16,500 to 17,000 vehicles over Q4. This translates into a sequential growth of at least 35%. [NIO-Inc-Reports-Unaudited-Third-Quarter-2020-Financial-Results.html#:~:text=Total%20revenues%20were%20RMB4%2C526.0,the%20second%20quarter%20of%202020.”>1]
See our analysis Nio-Xpeng-Li-Auto-How-Do-Chinese-EV-Stocks-Compare-?fromforbesandarticle=trefis201119″>Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? which compares the financial performance and valuation of the major U.S. listed Chinese electric vehicle players.
Despite the stronger than expected results and Q4 guidance, we think Nio stock looks overvalued. The stock is up by over 12x year-to-date and trades at about 27x projected 2020 Revenues. In comparison, Tesla
[11/16/2020] As Nio Stock Continues To Surge, Are Investors Getting Ahead Of Themselves?
Nio – the premium Chinese EV manufacturer – has seen its stock soar a whopping 58% over the last month trading at about $45 per share, driven by strong delivery numbers for October and a conducive regulatory environment in China for EVs. After a 12x rally year to date, Nio’s market cap is now higher than General Motors
[11/3/2020] Strong October Deliveries Drive Chinese EV Stocks
The stock prices of major U.S. listed Chinese electric-vehicle manufacturers soared on Monday, as they reported strong deliveries for October. Nio – one of the largest EV startups in China – saw its stock soar by about 9%, as it reported that deliveries in October almost doubled year-over-year to 5,055 vehicles. Xpeng ((NYSE: XPEV)), another premium EV player saw its stock rise by about 7%, as it delivered about 3,040 vehicles through the month, marking an increase of about 230% from a year ago, driven primarily by sales of its P7 sedan which was launched earlier this year. However, deliveries were slightly lower month-over-month. Li Auto (NASDAQ
The Chinese electric vehicle space is booming, with China-based manufacturers accounting for over 50% of global EV deliveries. Demand for EVs in China is likely to remain robust as the Chinese government wants about 25% of all new cars sold in the country to be electric by 2025, up from roughly 5% at present.  While Tesla is a leader in the Chinese luxury EV market driven by production at its new Shanghai facility, Nio, Xpeng ((NYSE: XPEV)), and Li Auto ((NASDAQ: LI)) – three relatively young U.S. listed Chinese electric vehicle players, have also been gaining traction. In our analysis Nio-Xpeng-Li-Auto-How-Do-Chinese-EV-Stocks-Compare-?fromforbesandarticle=trefis201119″> Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? we compare the financial performance and valuation of the major U.S. listed Chinese electric vehicle players. Parts of the analysis are summarized below.
Nio, which was founded in 2014, currently offers three premium electric SUVs, ES8, ES6, and EC6, which are priced starting at about $50k. The company is working on developing self-driving technology and also offers other unique innovations such as Battery as a Service (BaaS) – which allows customers to subscribe for car batteries, rather than paying for them upfront. While the company has scaled up production, it hasn’t come without challenges, as it recalled about 5,000 vehicles last year after reports of multiple fires.
Li Auto sells Extended-Range Electric Vehicles, which are essentially EVs that also have a small gasoline engine that can generate additional electric power for the battery. This reduces the need for EV-charging infrastructure, which is currently limited in China. The company’s hybrid strategy appears to be paying off – with its Li ONE SUV, which is priced at about $46,000 – ranking as the top-selling SUV in the new energy vehicle segment in China in September 2020. The new energy segment includes fuel cell, electric, and plug-in hybrid vehicles.
Xpeng produces and sells premium electric vehicles including the G3 SUV and the P7 four-door sedan, which are roughly positioned as rivals to Tesla’s Model Y SUV and Model 3 sedan, although they are more affordable, with the basic version of the G3 starting at about $22,000 post subsidies. The G3 SUV was among the top 3 Electric SUVs in terms of sales in China in 2019. While the company began production in late 2018, initially via a deal with an established automaker, it has started production at its own factory in the Guangdong province.
How Have The Deliveries, Revenues & Margins Trended
Nio delivered about 21k vehicles in 2019, up from about 11k vehicles in 2018. This compares to Xpeng which delivered about 13k vehicles in 2019 and Li Auto which delivered about 1k vehicles, considering that it began production only late last year. While Nio’s deliveries this year could approach about 40k units, Li Auto and Xpeng are likely to deliver around 25k vehicles with Li Auto seeing the highest growth. Over 2019, Nio’s Revenues stood at $1.1 billion, compared to about $40 million for Li Auto and $330 million for Xpeng. Nio’s Revenues are likely to grow 95% this year, while Xpeng’s Revenues are likely to grow by about 120%. All three companies remain deeply lossmaking as costs related to R&D and SG&A remain high relative to Revenues. Nio’s Net Margins stood at -195% in 2019, Li Auto’s margins stood at about -860% while Xpeng’s margins stood at -160%. However, margins are likely to improve sharply in 2020, as volumes pick up.
Nio’s Market Cap stood at about $37 billion as of October 28, 2020, with its stock price rising by about 7x year-to-date due to surging investor interest in EV stocks. Li Auto and Xpeng, which were both listed in the U.S. around August as they looked to capitalize on surging valuations, have a market cap of about $15 billion and $14 billion, respectively. On a relative basis, Nio trades at about 15x projected 2020 Revenues, Li Auto trades at about 12x, while Xpeng trades at about 20x.
While valuations are certainly high, investors are likely betting that these companies will continue to grow in the domestic market, while eventually playing a larger role in the global EV space leveraging China’s relatively low-cost manufacturing, and the country’s ecosystem of battery and auto parts suppliers. Of the three companies, Nio might be the safer bet, considering its slightly longer track record, higher Revenues, and investments in technology such as battery swaps and self-driving. Li Auto also looks attractive considering its rapid growth – driven by the uptake of its hybrid powertrains – and relatively attractive valuation of about 12x 2020 Revenue
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 50% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams