World News – CA – Should you choose Nio Stock over Tesla?

BRAZIL – 2019/10/13: In this illustration, the home page of the NIO Inc website is displayed on [] the computer screen through a magnifying glass (Illustration photo by Rafael Henrique / SOPA Images / LightRocket via Getty Images)

Electric vehicle stocks had a strong year, with investors favoring growth stocks while betting the disruption caused by Covid-19 could make the switch to EVs more difficult for mainstream automakers as Tesla
TSLA
the stock has climbed about 5 times this year, small players have also benefited Chinese luxury electric car maker Nio (NYSE: NIO) has seen its share price climb nearly 6 times since the start of year How do Tesla and Nio compare? While the two companies are trading at a similar valuation, with a sales price multiple of around 135x based on forecasted revenue for 2020, Nio is growing faster, but Tesla could be the safest bet Our analysis How Nio does it compare to Tesla? has more underlying numbers, parts of which are summarized below

Nio, which was founded in 2014, currently offers three premium electric SUVs, ES8, ES6 and EC6, which start at around $ 50,000 in price Nio delivered nearly 205k cars in 2019, marking an increase of 81 % year over year and we expect the number to grow by around 85% this year By comparison, Tesla deliveries increased by 50% last year to 368,000 vehicles and we expect that number will grow by around 29% in 2020, thanks to the launch of its Model Y and the opening of its Chinese factory Nio is in the early stages of growth with revenue up 56% last year, with growth likely to exceed 90% in 2020 Tesla’s sales only grew 15% last year and could potentially reach 30% in 2020

Nio’s net margins remained deeply negative in 2019, at -146%, with gross margins also remaining in the red Things are improving as sales ramp up, as gross margins have fallen from – 122% in Q1 2020 to around 84% in Q2 2020 and net margins are also expected to improve significantly in the short term Tesla, on the other hand, is expected to post net margins of over 5% this year, thanks to improved deliveries, increased regulatory credit sales and potentially higher software sales

Overall, though Nio’s recent faster growth and unique innovations such as Battery as a Service (BaaS) – which allows customers to subscribe for car batteries, rather than paying for them at advance – are undoubtedly interesting, we believe this remains an investment compared to Tesla Nio focuses on the extremely competitive Chinese EV market with several hundred players Rapidly increasing production will not be a task either easy for Nio The company has also faced quality issues in the past – last year it recalled around 5,000 vehicles after reporting multiple fires – and it remains to be seen if it can ramp up production while maintaining the quality

While Tesla shares also seem quite expensive, the company’s well-established and sought-after brand, cutting-edge technology and software differentiation, and steadily improving profitability could provide a better margin of safety over the Nio model. Tesla’s business market looks compelling, and margins are set to rise further due to falling battery costs, improved autonomous driving capabilities – which could boost software sales and a better operational lever

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