NIO: Nio vs. Ayro: Which Electric Vehicle Stock is a Better Buy?

The EV industry has had several start-ups emerge across the world, particularly through special-purpose acquisitions. With 2020 being deemed as the year of SPACs, several companies still in the preliminary stages have gone public to sustain their businesses during a recession. These companies have garnered significant investor attention lately.

Ayro, Inc. (AYRO), which went public on May 29th, specializes in light-duty trucks designed for short trips and urban commutes. The company’s distinctive car designs, target audience, and industrial application make it stand out in a sea of EV start-ups.

On the other hand, Chinese EV manufacturer NIO Ltd. (NIO) is a leading automobile producer in the world EV market. With significant government backing, NIO has emerged as a key player in the Chinese EV market. The company enjoys strategic advantages over foreign competitors in many aspects, especially unrestricted lithium supplies at a cheaper price.

Both companies have generated significant returns over the past six months. While NIO gained 1169.6% over this period, AYRO returned 142.3%. In terms of past three-month performance as well, NIO is the clear winner with 173.1% gains compared to AYRO’s 117.4% returns. However, AYRO gained 193.3% over the past month, exceeding NIO’s 65.2% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

Founded in 2015, AYRO went public through a reverse merger with DropCar on May 29th. Before making its market debut, the merged company AYRO undertook a reverse 1-for-5 stock split, as well as paid a dividend.

AYRO recently raised $10 million through a direct offering of 1.65 million shares to Carnegie Hudson Resources. The company also issued approximately 2.06 million stock warrants in the name of Carnegie Hudson in two tranches exercisable in six months and five years, respectively.

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Earlier in September, AYRO entered into a strategic partnership with Karma Automotive Innovation and Customization Center (KICC). This allows AYRO to leverage KICC’s industry knowledge, expertise, and state-of-the-art equipment for manufacturing its next generation vehicles. through this joint venture, AYRO aims to manufacture 20,000 light-duty trucks and delivery vehicles worth approximately $300 million over the next three years.

NIO recently raised $1.30 billion through an American depository share offering, which is expected to contribute to the research and development of electric car ecosystems and automated technologies as well as developing its global market presence. It also plans to buy back some of its shares from the Hefei investor group, which previously bailed out the company with a $1.40 billion cash infusion. The company is currently planning to expand to the European EV market.

NIO is the first company to launch a ‘battery as a service’ (BaaS) subscription model, allowing customers to purchase electric vehicles and battery packs separately. It is planning to launch its EVs in the European market by 2021. NIO aims to penetrate the most important global markets across the world by 2023 – 2024, according to CEO William Li.

Recent Financial Results

AYRO’s revenues increased by 46.4% year-over-year to $388,654 in the third quarter ended in September 2020. Net income from the ‘Other’ segment increased 1432.7% from the same period last year to $17,503, while EPS increased 83.1% from the same period last year.

NIO’s total revenues increased 146.4% year-over-year to RMB 4.53 billion in the third quarter ended September 2020. Vehicle sales grew 146.1% from the same period last year to RMB 4.27 billion. Gross profit rose significantly over this period to RMB 585.80 billion, compared to a negative year-ago value. NIO delivered 5,055 vehicles in October, up 100.1% from the same period last year.

Profitability

NIO’s trailing 12-month revenue is 1,904.72 times what AYRO generates. However, AYRO is more profitable with a gross margin of 21.4% compared to NIO’s 3.8%.

Valuation

In terms of trailing 12-month Price/Sales, AYRO is currently trading at 133.17x, 77.6% more expensive than NIO, which is currently trading at 29.80x. AYRO is also more expensive in terms of trailing 12-month EV/Sales (179.26x versus 36.92x).

However, NIO’s trailing 12-month Price-to-Book ratio of 51.78x is 88.7% more expensive than AYRO’s 5.84x.

POWR Ratings

Both AYRO and NIO are rated “Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for both these stocks:

AYRO has an “A” for Trade Grade and Industry Rank, “C” for Buy & Hold Grade, and “D” for Peer Grade. It is currently ranked #23 out of 34 stocks in the Auto & Vehicle Manufacturers industry.

NIO has an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade and Industry Rank. It is currently ranked #13 out of 115 stocks in the China group.

The Winner

NIO has a demonstrated history in the EV market, with impressive financials and growth momentum over the past couple of years. AYRO, on the other hand, is still relatively lesser-known in the market. While NIO’s spectacular growth rates put it ahead of AYRO, both companies have been found over the same period. AYRO was founded in July 2015, while NIO was launched in November 2014. While NIO managed to become a leading EV manufacturer in the world in such a short period, AYRO is still in its budding production stage. NIO’s quarterly revenues increased 146.4% year-over-year, while AYRO’s quarterly revenues rose 46.4% from the same period last year. Thus, at a relatively lower valuation, NIO is a better pick here.

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NIO shares were trading at $45.36 per share on Tuesday afternoon, down $5.17 (-10.23%). Year-to-date, NIO has gained 1,028.36%, versus a 15.30% 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...