LI: Li Auto vs. Lordstown Motors: Which Electric Vehicle Stock is a Better Buy?

The EV industry is experiencing unprecedented growth this year because most countries are now focused on eliminating carbon emissions within the next few decades. Also, the high fuel efficiency and lower maintenance costs of EVs are piquing demand. The S&P Kensho Electric Vehicles Index, which tracks the fastest growing EV companies around the world, has gained 154.7% over the past year, reflecting investor optimism about the industry’s growth potential.

Li Auto, Inc. (LI) is one of the biggest names in the Chinese EV market. The company’s brand recognition has allowed it to sell more than 26,000 vehicles as of November, despite pandemic-driven business disruptions. The stock was listed on NASDAQ stock exchange on July 30 and has gained 86.5% since. It hit its 52-week high of $47.70 on November 24.

Lordstown Motors Corporation (RIDE), in contrast, is a newly emerged company, which has been riding the EV boom since its stock market debut on October 26. It has gained more than 40% within a month.

But which of these stocks is a better buy now? Let’s find out.

Latest Developments

RIDE is one of the newest players in the EV industry, making its public-markets debut on October 26. The company entered a reverse merger with Diamond Peak Holdings Corporation for this purpose, thereby bypassing the costly and time-consuming traditional IPO process.

RIDE launched its Endurance pick-up truck in June and is currently building and testing Alpha 2 prototypes. It is currently constructing a motor production facility in Ohio, following which production should begin in September 2021. The company plans on opening a satellite research center in Michigan and a service center in California.

On December 16, RIDE partnered with Camping World Holdings to build a nationwide EV network. They are also exploring jointly developing new EV products.

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LI is a Chinese EV manufacturer specializing in SUVs. The company has approximately 45 retail stores and 97 services centers across China. On December 4, the company announced a public offering of 47 million class A shares at $29 a share, to raise approximately $1.36 billion.

LI delivered 4,646 units of its SUV Li ONE in November, reflecting strong demand and a growing domestic EV market. The company sold 26,498 vehicles in the first 11 months of 2020, making it one of the fastest growing EVs in the country.

Recent Financial Results

LI’s vehicle sales have increased 28.4% sequentially to $363 million in the third quarter ended September 30, 2020. Revenue rose 28.9% from the prior quarter to $369.80 million, while gross profit rose 91.3% sequentially to $73.20 million. Free cash flow increased 149.3% from the prior quarter to $110.40 million.

RIDE, in contrast, as a relatively new company, is still in the developmental stage. The company raised $675 million through its reverse merger earlier this year, which is expected to fund the operational expenses for the near future. RIDE received more than 25,000 pre-orders for its flagship Endurance pickup truck, which is expected to generate more than $1.40 billion in sales.

Past and Expected Financial Performance

Analysts expect LI’s EPS to increase 98.5% next year. The consensus revenue estimate of $1.35 billion for the current year indicates a 3,229% improvement year-over-year. LI’s revenue is expected to rise 90.9% next year to $2.58 billion.

Analysts expect RIDE’s EPS to increase 35.1% next year. The company is expected to generate $107.27 million in revenues in 2021.

Valuation

In terms of trailing 12-month price-to-book value, RIDE is currently trading at 638.69x, 7,068.2% more expensive than LI, which is trading at 8.91x.

The Winner

While both RIDE and LI demonstrate significant potential to grow consistent with the EV industry, LI’s market reach and technical expertise make it a better buy here. Moreover, LI enjoys unrestricted access to raw materials, such as lithium, which are crucial for EV production, at a relatively lower cost, suggesting potentially higher profitability.

For its part, though RIDE looks promising on paper, it has yet to launch its vehicles in the market. With numerous EV companies now entering the market, RIDE faces stiff competition from both newly emerged and well-established companies. With sky-high valuation and zero earnings to date, we believe RIDE is a highly risky investment currently.

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LI shares fell $0.15 (-0.47%) in after-hours trading Friday. Year-to-date, LI has gained 93.01%, versus a 16.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...