China-based electric vehicles (EV) manufacturers account for most global EV deliveries. In fact, the 1.3 million EVs sold in China in 2020 represented 41% of global EV sales. However, the EV boom has given rise to many EV start-ups in the country that have yet to develop production capacity to capitalize on the growing demand. And existing players are facing stiff competition in maintaining their market share.
As a result, investors have become concerned about the current valuations of Chinese EV stocks. And the stocks that have skyrocketed in the absence of sufficient fundamental strength based solely on investors’ optimism have been experiencing a major sell-off this year.
Furthermore, a current global semiconductor shortage has led many automakers to halt their production. This represents another investor concern. NIO Limited (NIO) and XPeng Inc. (XPEV) have retreated significantly this year, and it’s a trend that may not reverse anytime soon. So, we think it wise to avoid these two stocks now.
NIO Limited (NIO)
Based in China, NIO designs, jointly manufactures, and sells smart premium electric vehicles, driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence. The company provides users with comprehensive and convenient power solutions including Battery as a Service (BaaS), NIO Pilot and NIO Autonomous Driving (NAD), Autonomous Driving as a Service (ADaaS) and other user-centric services.
On March 26, NIO decided to temporarily suspend its vehicle production in its JAC-NIO manufacturing plant in Hefei for several working days due to a semiconductor shortage. The overall semiconductor supply constraint impacted the company’s production this month. Consequently, NIO has also lowered its vehicle delivery outlook for the first quarter.
NIO’s total revenues have increased 46.7% sequentially to $1.02 billion in the fourth quarter ended December 31. However, its top-line growth has not translated into profits. Its net loss has increased 32.4% from the previous quarter to $212.82 million, while its loss per share has risen 7.1% to $0.16.
Analysts expect NIO to report a loss per share of $0.15 in the current quarter ending March 31, 2021. The stock has lost 23% year-to-date and is currently trading at 11 times its sales, 776.8% higher than the industry average 1.25x.
NIO’s POWR Ratings are consistent with this bleak outlook. The stock has a D overall rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
NIO has a D grade for Sentiment, Value, and Quality. It is currently ranked #81 of 84 stocks in the D-rated China industry.
In total, we rate NIO on eight different levels. Beyond what we’ve stated above, we have also given NIO grades for Momentum, Stability, and Growth. Get all of NIO’s ratings here.
XPeng Inc. (XPEV)
XPEV is a Chinese smart electric vehicle company that designs, develops, manufactures, and markets smart electric vehicles. The company’s primary products are a type of sport utility vehicle named G3 and four-door sports sedan named the P7. It also provides vehicle leasing, bank loans, and auto insurance services.
This month , XPEV’s subsidiary in China entered a strategic cooperation agreement with Guangdong Yuecai Investment Holdings Co., Ltd. Pursuant to the agreement, Yuecai will invest a total of RMB500 million in XPEV’s subsidiary in China to accelerate the company’s business expansion.
The company’s revenues in the fourth quarter (ended December 31, 2020) were $436.99 million, surging 345.5% year-over-year. However, XPEV is still unprofitable and reported a loss of $171.83 million.
Analysts expect XPEV to report a loss per share of $0.15 in the current quarter, ending March 31. The stock has lost 21% year-to-date and is currently trading 12.21 times its sales, 875.6% higher than the industry average.
XPEV’s poor prospects are apparent in its POWR Ratings also. The stock has an overall D rating, equating to Sell in our proprietary rating system. XPEV also has a D grade for Quality, Stability, and Value. In the Auto & Vehicle Manufacturers industry, the stock is ranked #44 of 51 stocks.
Click here to see the additional POWR Ratings for XPEV (Momentum, Growth, and Sentiment).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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NIO shares were trading at $38.44 per share on Wednesday afternoon, up $0.89 (+2.37%). Year-to-date, NIO has declined -21.13%, versus a 6.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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