China has been leading the Electric Vehicle (EV) industry for quite some time now, with the country emerging as the largest manufacturer and marketer of EVs in the world. The country has ample lithium supply, which is a key component in the production of batteries for EVs. This has helped China keep its production costs lower than other developed countries across the world. The companies have been favored by domestic authorities as well, with subsidies, tax credits, and explicit and implicit protection from the central and state governments.

The development of the domestic EV industry is in line with China’s plan of going carbon neutral by 2060. With the global economy recovering from the pandemic disruption, affirmative vaccine news released by the United States and Russia, and projected renewed trade relations with the United States under the Biden administration, the Chinese EV industry is poised to grow significantly in the long term. Mordor Intelligence expects the Chinese EV market to grow at a CAGR of 25% over the next five years. This bodes well for two of the leading EV manufacturers NIO Limited (NIO) and Kandi Technologies Group Inc. (KNDI).

Both stocks have delivered decent returns over the past year. While NIO gained 2216.1% over this period, KNDI returned 88.5%. In terms of past six-month performance as well, NIO is the clear winner with 1051.9% gains compared to KNDI’s 85.1% returns.

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

Latest Developments

KNDI recently raised $60 million through a purchase agreement of 9.40 million common shares to institutional investors. The proceeds from this funding can help the company finance its expansion projects and meet its general corporate expenses.

On November 4th, KNDI received authorization from the United States Environmental Protection Agency for two of its EV models, clearing them for commercial sale in the country.

KNDI wholly-owned subsidiary Zhejiang Kandi Smart Battery Swap Technology Co. Ltd. is currently in the process of its IPO launch on the Shanghai STAR exchange. With a burgeoning EV market in China, the demand for vehicle battery separation swap is rising, which should pave the way for the newly listed company’s robust growth. A STAR listing can help the company garner substantial raise capital efficiently at relatively lower costs as well. Earlier in September, KNDI established a similar wholly-owned subsidiary China Battery Exchange Technology Co. Ltd. for battery swapping services.

KNDI has a 10% stake in the newly launched ride-sharing company Zhejiang Ruiheng Technology Company. On October 22nd, KNDI entered into a strategic cooperation agreement with Zhejiang State Electric vehicle Service Company, one of the largest state-owned companies in the world. this partnership is expected to boost KNDI’s growth in tandem with China’s EV industry.

Comparatively, NIO already has a dominating market share in China’s electric car market. It is currently planning to enter the European car market.

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.

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, as announced by CEO William Li.

Recent Financial Results

KNDI’s off-road vehicle sales increased 51.6% year-over-year to $8.90 million in the third quarter ended September 2020. Gross margin rose 420 basis points from the year-ago value to 20.9%.

NIO’s vehicle sales and total revenues both increased 146.5% year-over-year to $493.40 million and $526.40 million, respectively, in the second quarter ended June 2020. Gross profit of $44.30 million indicates a significant improvement from loss reported in the prior-year quarter.

NIO delivered 5,055 vehicles in October, up 100.1% from the year-ago value. As of October 31st, the company delivered 31,430 vehicles this year, indicating a 111.4% increase year-over-year.

Past and Expected Financial Performance

Since making its market debut in 2018, NIO’s revenue grew 21.5% from the same period last year. this compared to KNDI’s revenue growth at a CAGR of 11.3% over the past three years.

Analysts expect NIO’s revenue to grow 79.3% next year, while KNDI’s revenue is expected to rise 76.7% next year.

Profitability

NIO’s trailing 12-month revenue is 9.78 times what KNDI generates. However, KNDI is more profitable with a gross margin of 20.2% compared to NIO’s negative values.

Also, KNDI’s leveraged free cash flow margin and EBITDA margin of 34.4% and 3.1%, respectively, compare favorably with NIO’s negative values.

Valuation

In terms of trailing 12-month price/sales, NIO is currently trading at 31.14x, 938% higher than KNDI, which is currently trading at 3x. NIO is also more expensive in terms of trailing 12-month EV/ Sales (41.75x versus 3.14x).

Though KNDI is a more affordable stock here, NIO’s impressive financial performance and market reach justify its premium valuation.

POWR Ratings

While NIO is rated “Strong Buy” in our proprietary POWR Ratings system, KNDI is rated “Sell”. Here’s how the four components of overall POWR Rating are graded for both these stocks:

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

KNDI has a “B” for Industry Rank, “C” for Trade Grade and Peer Grade, and “F” for Buy & Hold Grade. It is ranked #60 in the same industry.

The Winner

Operating in the largest EV market in the world, both NIO and KNDI have a strategic advantage in the booming electric vehicle industry. However, KNDI has been significantly affected by the pandemic disruption, leading to a decline in its fundamentals. The stock is currently trading below its 50-day simple moving average of $7.03, reflecting short term bearishness.

NIO, on the other hand, is currently trading higher than its 50-day and 200-day moving averages of $27.58 and $14.94, respectively, indicating a golden cross uptrend in the stock. The company’s growth momentum has allowed it to be an established brand in the industry, competing with foreign multinational companies. NIO expansion plans to primarily European countries allow it to compete with Tesla, Inc. (TSLA), the largest EV seller in the world. Moreover, the company’s strategic ties with the Chinese government has given it steady access to capital, ensuring sustainable growth for the long haul. 

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NIO shares were trading at $46.92 per share on Thursday afternoon, up $3.84 (+8.91%). Year-to-date, NIO has gained 1,067.16%, versus a 11.93% 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...

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