NIO: 3 Stocks That Could be the Next TESLA

The automotive industry has become very volatile since the March crash. Underutilization of production plants due to lockdowns and lower auto loan generations have severely impacted the industry. But Tesla, Inc. (TSLA) has had a remarkable year and has been all over the news over the last six months.

TSLA has soared more than 300% this year to hit its all-time high of $502.49 earlier this month. Its fiscal year 2019 marked a turning point for the company, as there has been growing excitement among investors about the auto industry going electric.

TSLA managed to top 88,496 units and 90,891 units of vehicle deliveries in the first quarter and second quarter of 2020, respectively, despite the pandemic. In the second quarter, Energy storage deployed increased 61% quarter-over-quarter to 419 MWh. However, TSLA has been highly volatile due to profit bookings and its recent developments. Moreover, the stock is being perceived as highly overvalued now.

TSLA is not the only choice for investors seeking to benefit from the clean energy and electrification trend. It could be a good idea to explore some other stocks like NIO Inc. (NIO), Plug Power Inc. (PLUG), and Workhorse Group, Inc. (WKHS) in this space. Each of these stocks are fundamentally sound and could be big winners in the long run.

NIO Inc. (NIO)

NIO is a Shanghai-based electric vehicles producer known as the Tesla of China. The company designs, manufactures, and sells premium cars under the ES8, EVE, and EP9 brand names. It is also involved in the provision of energy and service packages to its users developing e-powertrains, battery packs, and other components. NIO has a strategic collaboration with Mobileye N.V. for the development of automated and autonomous vehicles.

NIO has gained more than 347% year-to-date to close Friday’s trading session at $17.98. The primary catalyst for this rally was an improvement in its liquidity position. The stock increased more than 221% over the last three months due to the recent developments taking place in the company.

NIO delivered 3,965 vehicles in August 2020, recording a fresh monthly high with an increase of 104% year-over-year. The company has delivered a total of 21,667 vehicles through August, an increase of 110% year-over-year. The company was facing a liquidity crunch earlier this year. Hence, at the end of April, NIO entered into an agreement with strategic investors and announced a substantial completion of cash injections in June. The company has also raised $1.73 billion through a series of follow-up public offerings of its common share.

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Vehicle sales grew 146% year-over-year to $493.4 million in the second quarter of 2020, But the company is still not generating profit. It reported a loss of $0.16 per share for the quarter, but this is a significant improvement from the quarter-ago loss of $0.23 per share. The expansion of its sales network, user community support, and competitive products are the main drivers of its growth. Hence, the street expects revenues to grow 92% and EPS to grow 50.7% in the current year.

How does NIO stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

B for Overall POWR Rating

The stock is also ranked #15 out of 115 stocks in the China industry.

Plug Power Inc. (PLUG)

PLUG is an alternative energy technology provider that engages in the design, development, manufacture, and commercialization of fuel cell systems for the industrial off-road markets worldwide. It provides hydrogen fuel cell turnkey solutions for the electric mobility and stationary power markets.

PLUG closed Friday’s trading session at $11.76, gaining 272% year-to-date. Environmental concerns have boosted demand for clean hydrogen power and hence, the stock is exhibiting strong momentum. The stock is up more than 141% over the last three months and is trading at an 18% discount to its 52-week high of $14.35.

The company has been on an expansion spree lately. It has recently announced a $314 million follow-up public offering. It has also issued $200 million worth convertible senior notes to improve its liquidity. Additionally, PLUG completed acquisitions of United Hydrogen and Giner Elx in the second quarter to accelerate its green hydrogen strategy.

Despite the pandemic, PLUG managed to generate revenue of $68 million in the last reported quarter, increasing 18% year-over-year. The company has efficiently managed and grown the capability of its supply chain to meet increased volumes, while reducing costs. However, the company is still not profitable and reported a negative EPS of $0.03 for the quarter; but the company is making big moves by signing new clients. Revenue is estimated to increase 34.7% in the current year, while EPS is anticipated to grow 25% growth per annum over the next 5 years.

PLUG’s POWR Ratings reflect this promising outlook. It has an overall rating of Buy with a grade of A for Trade Grade, and a B for Peer Grade and Industry Rank. Among the 57 stocks in the Industrial – Equipment industry, it’s ranked #13.

Workhorse Group, Inc. (WKHS)

WKHS designs, develops, manufactures, and sells high-performance, medium-duty trucks. The company’s products include trucks comprising a powertrain and a chassis. Their powertrain products include E-GEN and E-100. E-GEN is an electric, transmission-free system that works as an auxiliary generator, while the E-100 is an all-electric, medium-duty truck.

The stock has gained more than 548% year-to-date to close Friday’s trading session at $19.71. The stock gained momentum and took off in June when the company announced that two of its electric delivery vans had completed Federal Motor Vehicle Safety Standards testing, paving the way for sales and production in the United States. The stock increased more than 517% over the last three months.

WKSH has recently announced a new strategic alliance with tech giant Hitachi group. The company was included into the broad-market Russell 3000 Index in June. The other catalyst favoring WKSH’s strength is its 10% stake in Lordstown Motors which is competing with TSLA to bring an electric pickup truck to market. The company is also developing electric delivery vans that would be suited for FedEx (FDX) and United Parcel Services (UPS). Moreover, WKSH is one of three finalists for a $6.3 billion worth contract to supply delivery vehicles to the US Postal Service.

Revenue for the last reported quarter came in $92,000, increasing 1,572.7% year-over-year. The company is still not earning profit and reported a negative EPS of $1.76 for the quarter. The company expects to produce and deliver 300 to 400 vehicles this year. Hence, the revenue is estimated to rise significantly in the next quarter, while EPS is expected to grow 82.4% next year.

WKSH’s strong momentum is reflected in its POWR Ratings. It has a Buy rating with a grade of A in Trade Grade and Industry Rank, and a B in Buy & Hold Grade and Peer Grade. Within the Auto & Vehicle Manufacturers industry, it’s ranked #15 out of 29 stocks.

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NIO shares were trading at $17.35 per share on Tuesday afternoon, down $0.63 (-3.50%). Year-to-date, NIO has gained 331.59%, versus a 5.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...