China is the world’s largest electric vehicle (EV) market. A report from Mordor Intelligence estimates China’s EV market to grow at an annual rate of 31% between 2021 and 2026 after touching $98 billion in 2019.
The Chinese government is focused on lowering exhaust emissions to combat rising pollution levels. It also provides EV buyers incentives via subsidies to boost demand, while investing heavily to create a robust charging infrastructure.
So, China-based EV companies have enough tailwinds to allow them to benefit from a multi-year growth spurt. Keeping these factors in mind, let’s see which between NIO (NIO) and XPeng (XPEV) should be part of your buying list right now.
The bull case for NIO
Shares of NIO gained over 1,000% in 2020 but then fell by 50% in the past year, valuing the company at a market cap of $46 billion. Despite the recent pullback, NIO stock has almost tripled in market value since September 2018.
NIO is one of the largest EV players in China and has sold 156,581 automobiles to date. In the first 11 months of 2021, NIO’s vehicle deliveries stood at 80,940, an increase of 120% year over year.
The company continues to expand its product portfolio and is expected to launch three new vehicles this year. In addition to auto sales, NIO successfully built a battery-as-a-service model where the company has already installed 700 battery swapping stations all over China and aims to end the year with 1,300 battery swapping stations.
NIO is forecast to increase sales by 120% to $5.62 billion in 2021 and by another 75% to $9.81 billion in 2022. While still unprofitable, NIO’s loss per share is expected to narrow from $0.73 in 2020 to $0.23 in 2022. We can see NIO stock is valued at a forward price to sales multiple of less than 5x which is quite reasonable given its growth rates.
The bull case for XPeng
Valued at a market cap of $40 billion, XPeng stock has more than doubled since going public in late 2020. However, similar to NIO, XPeng is also down 38% from all-time highs, allowing you to buy the dip.
XPeng’s vehicle deliveries have risen 285% year over year in the first 11 months of 2021 while the company delivered 15,613 vehicles in the month of November, up 285% year over year. Last year, XPeng disclosed a new smart sedan- the P5 and also announced upgrades to its assisted-driving solution. Further, the company claimed the G9 SUV will be the first to support the ADAS (advanced driver assistance system) in early 2023.
Another reason for investors to remain bullish on XPeng stock is the possibility of expansion into several international markets. In fact, XPeng President Brian Gu confirmed the company will soon enter European markets including the Netherlands, Sweden, and Denmark.
XPeng is forecast to increase sales by 249% to $3.17 billion in 2021 and by another 91% to $6.06 billion in 2022. While still unprofitable, its loss per share is expected to narrow from $1.23 in 2020 to $0.72 in 2022. We can see XPEV stock is valued at a forward price to 2022 sales multiple of less than 7x which is also reasonable.
Both NIO and XPeng are poised to grow top-line at an enviable rate. Alternatively, the two companies will also have to fight off competition from established players such as Tesla (TSLA) as well as from legacy automobile manufacturers such as Volkswagen (VWAGY) and Ford (F).
Yet, I believe NIO’s lower valuation and greater upside potential make it a better bet compared to XPeng. Analysts expect NIO stock to double from current prices while XPEV stock is expected to rise by 40% in the next year.
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NIO shares were trading at $27.99 per share on Monday morning, down $1.31 (-4.47%). Year-to-date, NIO has declined -11.65%, versus a -3.46% 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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