Nio Limited (NIO) and General Motors Company (GM) are two of the world’s largest automobile manufacturers. Headquartered in Shanghai, China, NIO manufactures and sells electric vehicles internationally. The company also offers charging solutions, energy and service packages. Headquartered in Detroit, Michigan, GM designs and sells trucks, crossovers, and automobile parts worldwide. It operates through the following segments: GM North America, GM International, Cruise, and GM Financial.
The global electric vehicle industry is expanding rapidly with sales volumes becoming large enough now to represent substantial profit opportunities for well-positioned suppliers and upstream players like NIO and GM. These companies are making significant investments in product development and manufacturing to accelerate progress toward an all-electric-vehicle future.
While NIO has returned 1,028.4% over the past year, GM has gained 57.4%. In terms of year-to-date performance, GM is the clear winner with 32.3% returns versus NIO’s 19.7%. But which of these stocks is a better pick now? Let’s find out.
This month NIO closed an offering of $1.5 billion in of convertible senior notes. The company plans to use the t offering’s proceeds for general corporate purposes and to further strengthen its cash and balance-sheet positions.
In December, NIO offered of 68 million American depositary shares at $39.00 per ADS. The company plans to use the offering’s proceeds for research and development of new products, service network expansion and for general corporate purposes.
GM and Cruise this month teamed up with Microsoft (MSFT) to accelerate the commercialization of self-driving vehicles. This should help GM realize even more benefits from cloud computing as it launches 30 new electric vehicles globally by 2025 and creates new businesses and services to drive growth.
Also this month, GM announced the launch of BightDrop, a new business that will offer an integrated ecosystem of electric products, software and services that will empower delivery and logistics companies to move goods more efficiently. Since there is an increase in demand for urban last-mile delivery, this new business is expected to generate substantial returns for GM.
Recent Financial Results
In the third ended September 30, 2020, NIO’s revenue increased 146.4% year-over-year to $666.6 million. Its gross profit rose 87.1% sequentially to $86.3 million, while its gross margin increased 452 basis points sequentially to 12.9%. NIO’s vehicle sales climbed 146.1% from the year-ago value to $628.4 million, while vehicle margin improved 2130 basis points to 14.5%. The company reported a net loss of $154.2 million over this period.
GM’s North American segment’s revenue for the third ended September 30, 2020increased 44.4% year-over-year to $4.37 billion. The company’s net income grew 72.1% from the year-ago value to $4.05 billion, while its EPS rose 74% year-over-year to $2.78. GM’s adjusted EBIT increased 78.2% from the year-ago value to $5.28 billion.
Note that GM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Expected Financial Performance
Analysts expect NIO’s revenue to increase 266.9% in the current quarter, and 98.6% in the current year. Its EPS is expected to grow 47.8% in the current quarter and 42.4% in the current year.
Analysts expect GM’s revenue to increase 4.7% in the current quarter and 12.6% in the current year, while the company’s EPS is expected to grow 112.9% in the current quarter, and 24.6% in the current year.
GM’s trailing-12-month revenue is more than 62 times NIO’s. Moreover, GM is more profitable with a gross profit margin of 9.7% versus NIO’s 3.8%.
In fact, GM’s EBITDA margin of 8.9% compares with NIO’s negative value.
In terms of trailing-12-month Price/Sales, NIO is currently trading at 34.42x, much more expensive than GM, which is trading at 0.68x. Its trailing-12-month EV/Sales of 49.17x is also much higher than GM’s 1.47x.
Thus, GM is the more affordable stock here.
While NIO is rated “Buy” in our proprietary POWR Ratings system, GM is rated “Strong Buy.” Here are how the four components of overall POWR Rating are graded for NIO and GM:
NIO has an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade and Industry Rank. In the 103-stock China group, it is ranked #19.
GM has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #5 of 52 stocks in the Auto & Vehicle Manufacturers industry.
While both NIO and GM are good investment bets considering the factors discussed here, GM appears to be a better choice because it is a cheaper and more profitable investment option to benefit from electric vehicle industry’s growth. Also, the company’s strong financials should help it outperform NIO.
More Great Investing Ideas?
GM shares were trading at $55.24 per share on Friday afternoon, up $0.16 (+0.29%). Year-to-date, GM has gained 32.66%, versus a 2.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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