TSLA: Tesla vs. XPeng: Which Stock is a Better Buy?

Tesla, Inc. (TSLA - Get Rating) revolutionized the electric car industry through its top-of-the-line products that have higher efficiency and durability. It is one of the stocks that easily dodged the market volatility amid the pandemic, to reach record highs. XPeng, Inc. (XPEV - Get Rating), on the other hand, is a Chinese EV designer and manufacturer. Operating in the largest automobile market in the world (both in terms of demand and supply), XPEV has emerged as one of the leading manufacturers of electric vehicles, giving stiff competition to the US-based organizations.

Though XPEV is a relatively new company, which went public in August this year, its robust exports and price advantage gives it an upper hand in the current market. XPEV gained 9.3% over the past month while TSLA declined marginally. But which stock is the better buy now? Let’s find out.

Latest Developments

TSLA has been deemed one of the best performing stocks during the pandemic, with a 425.1% gain year-to-date. Its record high share prices led to the announcement of a 5-for-1 stock split on August 11^th. The company reported profits for four consecutive quarters, following which analysts and investors speculated on its potential inclusion in the S&P Dow Jones Indices. However, TSLA did not make the cut, leading to a huge sell-off.

TSLA’s Model S was tested to be the safest car ever by National Highway Traffic Administration upon launch. TSLA is currently planning to launch three new electric vehicles in the near future, including a Tesla Cybertruck and 2 electric cars. It is currently planning to expand to Indonesia to ensure a steady supply of nickel, a key component in manufacturing car batteries.

TSLA is reportedly planning to launch its product in India in 2021. With a huge population and thereby market base, this expansion is expected to ramp up the profits for the company.

CleanSpark, a software and services company, recently partnered with TSLA to use its batteries for a Microgrid project in South America. TSLA is currently planning to expand to Indonesia to ensure a steady supply of nickel, a key component in manufacturing car batteries.

XPEV raised $1.5 billion through its listing on the NYSE, in August this year. Alibaba Group Holdings Ltd. (BABA - Get Rating) had a 19% stake in XPEV as of August 26^th. XPEV’s class A American Depositary Shares were included in the MSCI China All Shares Indexes and MSCI Global Standard Indexes, effective September 11^th.

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XPEV’s wholly owned subsidiary Guangdong Xiaopeng Motors Technology Co., Ltd. signed an agreement with Guangzhou GET Investment Holdings Co., Ltd. for developing a smart EV manufacturing base in Guangzhou.

Recent Financial Results

TSLA’s EV deliveries increased 7% year-over-year (subject to operating lease accounting) in the third quarter that ended September 2020.

XPEV delivered 8,578 vehicles in the third quarter that ended September 2020, indicating a 266% improvement year-over-year. It delivered a record of 3,478 smart EVs in September, up 145% from the same period last year, and 31% from the prior month value.

Thus, EPEV has an edge over TSLA here.

Past and Expected Financial Performance

TSLA’s revenue and EBITDA grew 3.1% and 46.8% year-over-year. Analysts expect TSLA’s EPS and revenue to grow 86.9% and 39.8%, respectively, next year.

XPEV’s revenue increased 23,815.3% year-over-year, while its EBITDA rose 123% over this period. Analysts expect the company’s EPS and revenue to rise 44.8% and 172.9% next year.

Thus, XPEV is in an advantageous position here as well.

Valuation

In terms of trailing 12-month price/sales, TSLA is currently trading at 15.52x, 18.6% more expensive than XPEV, which is currently trading at 13.09x. However, XPEV is more expensive than TSLA in terms of trailing 12-month EV/sales ratio (57.12x versus 16.26x).

The Winner

TSLA being a dominant player in the market with solid financial growth over the last couple of years might be a safe choice. However, its growth potential is lower compared to XPEV. XPEV has delivered triple digit gains year-over-year, despite going public in August. It is currently branching out to European markets as well, as it sent its first shipment of smart EVs to Norway, for sale in the Scandinavian countries. XPEV’s expansion plans, favorable analyst sentiment and accelerating demand and thereby sales are expected to drive the stock to record highs in the upcoming months, making it the better buy now.

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TSLA shares were trading at $432.90 per share on Monday afternoon, down $6.77 (-1.54%). Year-to-date, TSLA has gained 417.41%, versus a 7.99% 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...