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

The electric vehicle industry has become one of the most talked about segments over the past couple of years, with new technological innovations venturing to revolutionize the automobile industry as we know it. Electric vehicles have managed to amass attention due its cost efficiency amid rising concerns for climate change, and have been backed by government regulations across the world.

With its vast lithium and related natural resources deposits, it comes as no surprise that China is the leading producer of EVs in the world. The country’s ability to manufacture vehicles at competitive prices along with material government support have led to robust growth of domestic EV companies such as NIO Ltd. (NIO).

However, the United States is not far behind. US-based companies have compensated for their relatively higher costs through unique designs and innovative technologies deployed. Arcimoto, Inc. (FUV) has made its name in the market by launching three-wheeled fun utility vehicles (FUV), already sparking market interest within less than a year of operations, providing stiff competition to NIO.

Both companies have generated significant returns over the past year. While NIO gained 2,488.3% over this period, FUV has returned 319.6%. In terms of year-to-date performance, NIO is the clear winner with a 1,059% gain versus FUV’s 392.6% return.

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

Latest Developments

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 Hefei Investor Group, which previously bailed out the company with a $1.40 billion cash infusion. The company is currently planning to expand into the European EV market as well.

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 most important global markets across the world by 2023 – 2024, according to CEO William Li.

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FUV partnered with DHL in the third quarter to facilitate home delivery of Arcimoto vehicles across the country, boosting the company’s direct-to-customer sales channel. It also launched high visibility pilot programs for Arcimoto vehicles, and began the production of recreational motorcycle Arcimoto Roadster over this period.

Earlier this year, FUV raised $10 million through a common stock offering of 1.37 million shares, which should fund the company’s production and working capital related expenses, thereby accelerating its supply capacity.

Recent Financial Results

NIO’s total revenues increased 146.4% year-over-year to RMB4.53 billion in the third quarter that ended September 2020. Vehicle sales grew 146.1% from the same period last year to RMB4.27 billion. Gross profit rose significantly over this period to RMB585.80 billion, compared to negative year-ago value. NIO delivered 5,055 vehicles in October, up 100.1% from the same period last year.

FUV’s total revenue increased 1,953.1% year-over-year to $683,895 in the third quarter that ended September 2020. The company produced 31 vehicles in the month of September. EPS improved 31.8% from the same period last year.

Past and Expected Financial Performance

FUV’s revenue increased 9133.5% year-over-year, while NIO’s revenue grew 21.5% year-over-year.

Analysts expect FUV’s EPS to rise 40% in the current quarter, 34.1% in the current year, and 19.6% next year. The company’s revenue is expected to grow 57.8% in the current quarter, 222.9% in the current year, and 575.5% next year.

On the other hand, NIO’s EPS is expected to grow 61.5% in the current quarter, 50.7% in the current year, and 33.8% next year. Analysts expect NIO’s revenue to increase 98.6% in the current quarter, 104.7% in the current year, and 79.3% next year.

Valuation

In terms of trailing 12-month Price/Sales, FUV is currently trading at 100.23x, 65.9% more expensive than NIO, which is currently trading at 34.17x. FUV is also more expensive in terms of trailing 12-month EV/Sales (138.70x versus 45.71x).

POWR Ratings

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

NIO has an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade and Industry Rank. In the 115-stock China group, NIO is currently ranked #3.

FUV has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade, and a “C” for Peer Grade. It is currently ranked #24 out of 33 stocks in the Auto & Vehicle Manufacturers industry.

The Winner

NIO impressive financials and earnings potential makes it well-suited to emerge as a global leader in the electric vehicle industry in the near future. The company also enjoys support from the Chinese government, allowing it to become a major player in the largest EV market, within less than a decade of inception. Also, China’s miraculous recovery from the pandemic disruption indicates high consumer demand for EVs compared to other slowly recovering economies such as the United States, on the brunt of another lockdown.

FUV, on other hand, is a budding company without substantial market reach. While FUV’s fundamental strength should allow the company to become one of the key players in the market, the political scenario along with the second wave of coronavirus might act as a short-term barrier.

Thus, NIO is a better buy now.

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NIO shares were trading at $45.47 per share on Wednesday morning, down $1.12 (-2.40%). Year-to-date, NIO has gained 1,031.09%, versus a 13.80% 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...