The global electric vehicle (EV) market is expected to achieve new highs in 2021 with increasing sales, especially in China and Europe. The industry’s impressive growth prospects have attracted many new entrants. While the shares of most of companies in the sector have skyrocketed over the past year, many of them don’t have enough financial strength or sufficiently robust product pipelines to justify their current valuations.

NIO Inc. (NIO - Get Rating) and Geely Automobile Holdings Limited (GELYF - Get Rating), two popular EV manufacturers based in China and Hong Kong, respectively, have made progress over the past year. However, their near-term prospects don’t look promising. 

Click here to checkout our Electric Vehicle Industry Report for 2021

NIO has gained 1195.6% over the past year, while GELYF has returned 70.9% over this period. However, NIO has lost 21.1% year-to-date, while GELFY slumped 24.3%. So, which of these stocks is a better pick now? Let’s find out. 

Latest Movements

Today, Ford Motor Company (F) partnered up with NIO to access its charging network for Ford’s made-in-China Mustang Mach-E in 20 major cities across China. NIO delivered 7,257 vehicles in March, representing an improvement of 373% from the prior-year period. It delivered 20,060 vehicles in the first quarter of 2021, representing an increase of 423% year-over-year. Last month, NIO halted vehicle production in its  JAC-NIO manufacturing plant in Hefei, China for five days, due to a semiconductor shortage. In January, NIO closed an offering of $750 million of convertible senior notes due 2026 and  2027.

Recently, GELYF became the first Asian member to be appointed to The International Automotive Task Force (IATF), a global organization that sets automotive quality standards. GELYF delivered 100,029 vehicles in March, representing an improvement of 37% from the prior-year period. It has delivered 333,576 vehicles in the first quarter of 2021, up 62% year-over-year. Also in March, GELYF launched Zeeky Company Limited, a China-based new electric mobility technology and solutions company that will serve premium electric vehicles. And in February, Volvo Cars (VLVLY) collaborated with GELYF to maximize the strengths of the Swedish and Chinese automotive groups by delivering synergies in powertrains, sharing electric vehicle architecture, joint procurement, autonomous drive technologies and aftersales.

Recent Financial Results

NIO’s revenue for the fourth quarter, ended December 31, 2020, increased 133.2% year-over-year to RMB6.64 billion. Its  loss from operations was  RMB931.39 million, compared to a RMB2.83 billion loss from operations in the fourth quarter of 2019. NIO’s non-GAAP net loss of RMB1.33 billion was reported in the fourth quarter, compared to  a RMB2.81 billion loss in the prior-year period. Also, its loss per share was  RMB0.82, compared to that of RMB2.73 in the fourth quarter of 2019. However, its total assets have increased 247.7% year-over-year to RMB54.64 billion as of December 31, 2020.

For the year ended December 31, 2020, GELYF’s total revenue decreased 5% year-over-year to RMB92.1 billion. Its  net profit declined 32% year-over-year to RMB5.5 billion in 2020. And its EPS declined 37% year-over-year to RMB0.56.

Past and Expected Financial Performance

NIO’s total assets grew at CAGR of 73.5% over the past three years. Analysts expect NIO’s EPS to remain negative in its  fiscal year 2021. Its revenue is expected to increase 112.5% in the current quarter (ending June 30, 2021), 107% in the current year and 65.1% next year. NIO’s EPS is expected to decline slightly over the next five years.

In comparison, GELYF’s total assets grew at a CAGR of 9.3% over the past three years. Analysts expect GELYF’s revenue to increase 17.6% in the current year and 11.2% next year.

Profitability

GELYF’s trailing-12-month revenue is 4.7 times NIO’s. Also, GELYF is more profitable, with a gross profit margin of 16% versus NIO’s 11.5%.

However, GELYF’s ROE of 9.4% compares favorably with NIO’s negative value.

Valuation

In terms of forward EV/sales, NIO is currently trading at 10.95x, 723.3% higher than GELYF, which is currently trading at 1.33x. Also, in terms of trailing-12-month price/sales, NIO’s 18.27x is significantly higher than GELYF’s 1.68x.

GELYF’s trailing-12-month price/cash flow of 99.38x is significantly lower than NIO’s 210.97x.

Thus, GELYF looks more affordable here.

The Winner

The EV industry is currently witnessing a sharp pullback, due to  asset bubble concerns and limited production capability owing to the global semiconductor shortage. Given the relative overvaluation and limited growth potential of the two stocks, we think investors should wait until the broader EV markets stabilize before investing in either company. 

Click here to checkout our Electric Vehicle Industry Report for 2021

NIO shares were trading at $37.13 per share on Wednesday afternoon, down $1.35 (-3.51%). Year-to-date, NIO has declined -23.82%, versus a 10.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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