Electric vehicle (EV) stocks continue to excite investors, as the transition towards clean energy gains pace. In just the first 7 days of trading in 2021, the KraneShares Electric Vehicles & Future Mobility Index ETF (KARS) is up over 12%.
Driven by technological advancements, as well as government subsidies and economies of scale, growth in the EV industry will remain strong for quite some time. According to a Goldman Sach, EVs will account for 18% of global new light vehicle sales in 2030 and then jump to 29% in 2035.
With this in mind, I decided to take a look at and compare the two EV stocks that had the strongest gains in 2020: NIO (NIO), which gained more than 1,100%, and GreenPower Motor (GP), which gained more than 1,800%.
NIO is one of the largest EV companies
There are several things going right for NIO. It is one of the largest EV players in China, which is the world’s largest market of battery-powered automobiles. The rise in the purchasing power of the country’s middle class coupled with supportive government policies will continue to drive demand for NIO and peers over the long-term.
However, the rise in the adoption of EVs in China meant the government reduced subsidies by 20% in 2021. It remains to be seen if this will impact demand for NIO and other EV manufacturers this year.
In December 2020, NIO delivered 7,007 vehicles, a rise of 121% year-over-year. For 2020, the company’s deliveries stood at 43,728, up 113% year-over-year. NIO recently raised $2.65 billion in an equity offering to support its growth initiatives. The company also announced plans to issue convertible debt and raise $1.3 billion to strengthen its balance sheet as well as improve liquidity.
NIO continues to expand its product portfolio and also showcased the ET7 during its annual NIO Day program. The ET7 is a luxury sedan with a battery range of 620 miles and the vehicle is expected to be priced at $69,100.
NIO is valued at a market cap of $97 billion indicating a forward price to 2021 sales multiple of almost 20x. However, its strong growth rates might support its steep valuation especially if the company is able to consistently beat Wall Street estimates going forward.
GreenPower Motors is a Canadian-based EV
GreenPower Motors is not as established a name as Tesla or NIO. GP, in fact, is part of the high-growth electric vehicle segment in the medium and heavy-duty commercial vertical. The company has an asset-light business model which allows it to maintain solid profit margins due to lower manufacturing costs.
For example, the company has spent just $2 million in research and development costs since 2017, as it uses off-the-shelf components that enable it to lower costs significantly. GreenPower sells vehicles in partnership with Creative Bus Sales which is the largest network of bus retailers in the country.
This business model will help GreenPower to increase profit margins at a higher rate compared to its revenue, indicating it will benefit from operating leverage. GreenPower expects the medium and heavy-duty commercial EV market to hit 50,000 in annual vehicle deliveries by 2025.
GreenPower has a forward price to fiscal 2022 sales multiple of 15. While the company is still posting an adjusted loss, analysts expect the bottom-line to improve from a loss per share of $0.34 in fiscal 2020 to earnings of $0.22 in fiscal 2022.
GreenPower is not only trading at a lower valuation compared to NIO, it is also improving profitability at a fast clip compared to its Chinese counterpart. However, GreenPower is still a small-cap company and this investment carries a higher risk-reward ratio compared with NIO.
Therefore, I believe NIO is a better investment right now. Although the stock is trading at a premium, its leadership position in China and its rapidly expanding market makes it a better bet than GP right now.
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NIO shares were trading at $63.61 per share on Wednesday morning, up $1.57 (+2.53%). Year-to-date, NIO has gained 30.51%, versus a 1.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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