In this article, I have evaluated two electric vehicle (EV) stocks, Tesla, Inc. (TSLA) and China-based NIO Inc (NIO), to determine which is better for an investor to watch. Based on the fundamental comparison of these stocks, I believe TSLA has better upside potential for the reasons explained throughout this article.
The global auto industry is experiencing a significant transformation, as evident from the surge in EV sales. The International Energy Agency's (IEA) Global Electric Vehicle Outlook reveals that over 10 million electric cars were sold worldwide last year.
Ambitious policy programs in major economies are expected to increase the market share for electric vehicles further in this decade and beyond.
The EV market is anticipated to witness a revenue of $70.13 billion in 2023. This growth trajectory is projected to expand at a CAGR of 18.2% to reach $161.60 billion by 2028. In addition, unit sales of EVs are expected to reach 2.46 million vehicles in 2028. All of these should bode well for NIO and TSLA.
TSLA is a clear winner in terms of price performance, with 129.3% returns over the past six months compared to NIO’s 7.2% decline. TSLA has gained 30.5% over the past three months, while NIO has gained 4.6%. Also, TSLA’s 2.2% gains over the past year compare to NIO’s 59.3% decline.
Here are the reasons why we think TSLA could be a better watchlist addition in the near term:
Latest Developments
On June 27, 2023, Swedish carmaker Volvo Cars said it had signed an agreement with TSLA to give its electric vehicles (EVs) access to the EV maker's Supercharger network in the United States, Canada, and Mexico.
In addition, on May 26, TSLA and renowned automakers Ford Motor Co. (F) announced a surprise deal on electric vehicle charging technology and infrastructure. Under the deal, Ford owners will get access to more than 12,000 TSLA Superchargers across the U.S. and Canada starting early next year.
Conversely, on May 24, NIO launched the All-New ES6, an all-round smart electric SUV, whose deliveries commenced the next day. The vehicle has garnered positive user feedback thanks to its exceptional design, impressive performance, comfort, and cutting-edge digital systems.
Recent Financial Results
TSLA’s total revenues for the first quarter ended March 31, 2023, increased 24.4% year-over-year to $23.33 billion. Its total automotive revenues increased 18.4% year-over-year to $19.96 billion.
However, its adjusted EBITDA declined 15.1% over the prior-year quarter to $4.27 billion. The company’s non-GAAP net income attributable to common stockholders decreased 21.5% year-over-year to $2.93 billion. Also, its non-GAAP EPS came in at $0.85, representing a decline of 20.6% year-over-year.
Conversely, during the first quarter that ended March 31, 2023, NIO’s revenues grew 7.7% year-over-year to $1.55 billion. However, its vehicle margin for the quarter was 5.1%, compared to 18.1% in the previous-year quarter. The company’s gross profit fell 88.8% year-over-year to $23.62 million.
Furthermore, the company’s adjusted net loss per ADS rose 217.7% from the prior year’s quarter to $0.36.
Past and Expected Financial Performance
TSLA’s revenue grew at a CAGR of 49% over the past three years. Analysts expect the company’s revenue to rise 43.6% in the current quarter, 19.5% in the next quarter, and 23.1% in the current year. The company’s EPS is expected to rise 5.8% in the current quarter but to decline 16.2% in the next quarter and 14.2% in the current year.
On the other hand, over the past three years, NIO’s revenue rose at a CAGR of 87.7%. Analysts expect NIO’s EPS to decline 76.1% in the current quarter but rise a mere 2.6% in the next quarter and 4% in the current year. The company’s revenue is expected to decrease by 12.7% in the current quarter but increase by 38.7% in the next quarter and 30% in the current year.
Profitability
TSLA is more profitable, with a trailing-12-month gross profit margin of 23.13% compared to NIO’s 7.80%. Also, TSLA’s trailing-12-month EBITDA margin and net income margin of 14.82% and 13.66% are higher than NIO’s negative 30.74% and negative 35.05%, respectively.
Furthermore, TSLA’s trailing-12-month ROCE, ROTA, and ROTC of 28.70%, 13.53%, and 16.39% compare to NIO’s negative 65.49%, 19.63%, and 20.77%, respectively.
Valuation
In terms of forward EV/Sales, NIO is currently trading at 7.46x, lower than TSLA, which is trading at 0.61x. Likewise, NIO’s forward P/S multiple of 1.54 is lower than TSLA’s 7.62.
Here, NIO is relatively affordable.
POWR Ratings
TSLA has an overall rating of C, translating to a Neutral in our proprietary POWR Ratings system. Conversely, NIO has an overall rating of F, which equates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. TSLA has a B grade for Quality. Its trailing-12-month cash from operations and cash per share of $16.04 billion and $17.21 are significantly higher than the industry averages of $181.73 million and $2.36, respectively.
However, NIO has a grade of D for Quality. Its trailing-12-month cash from operations of negative $560.53 million compares to the $181.73 million industry average. Its $1.30 trailing-12-month cash per share is 44.7% lower than the $2.36 industry average.
Moreover, TSLA has a C for Growth, consistent with its mixed financial performance in the recent quarter. On the other hand, NIO’s D grade in Growth is justified by its disappointing financial results in the previous quarter.
Of the 57 stocks in the Auto & Vehicle Manufacturers industry, NIO is ranked #52, while TSLA is ranked #38.
Beyond what we’ve stated above, we have also rated both stocks for Sentiment, Momentum, Value, and Stability. Access all TSLA ratings here. Click here to view NIO ratings.
The Winner
The EV market has experienced significant growth in recent years and is projected to continue expanding in the next decade due to increased adoption of EVs and government support. NIO and TSLA are expected to reap benefits from the industry's promising outlook.
TSLA’s recent collaborations with other industry players demonstrate the growing recognition of TSLA's Supercharger network as a reliable and widespread charging infrastructure.
In conclusion, due to NIO's weak financial performance, lack of profitability, and unfavorable growth prospects, its competitor TSLA emerges as a more compelling stock to monitor.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
What To Do Next?
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TSLA shares rose $1.76 (+0.70%) in premarket trading Wednesday. Year-to-date, TSLA has gained 104.81%, versus a 14.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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