Nio, Li Auto, and Xpeng: Which Chinese EV Stock Is The Best Value?

In late October 2020, we compared the three U.S. listed Chinese electric vehicle (EV) players, Nio (NYSE: NIO), Li Auto (NASDAQ: LI), and Xpeng (NYSE: XPEV). The stocks have had a solid run since then. Over the last three months, Nio stock is up by about 110%, Li Auto is up by roughly 80%, and Xpeng is up a whopping 157%. The surge is driven by strong delivery figures from all three players and continued investor interest in the broader EV theme. All three companies have also capitalized on the stock price surge, selling additional shares at attractive valuations, in a move that should help to reduce risk and give them funds for expansion and innovation. During our last update, we noted that Li Auto appeared to be the best value among the three players, and we believe this still holds true for a couple of reasons.

See our analysis  Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for more details on how the revenues, deliveries, growth, and margins of Chinese EV players compare.

While Nio and Xpeng have certainly received a lot of buzz in recent weeks, due to their planned new vehicle launches, updates to their autonomous driving solutions/improvements to battery technology, Li’s focus is on vehicles that have a small gasoline engine that can generate additional electric power for the battery, reducing reliance on EV-charging infrastructure, which is limited in China. While the company has just one vehicle on sale – the Li ONE SUV – it ranks among the top-selling SUV in the new energy vehicle segment in China. For perspective, in December, the company sold 6,126 units of the Li ONE,  while Nio sold 7,007 units of its three SUV models, combined. Li could have more upside as it expands its vehicle lineup. The valuation also looks reasonable. Li Auto trades at about 11x consensus 2021 Revenues, with sales likely to grow by about 112% this year. On the other hand, Nio presently trades at about 18.5x projected 2021 Revenues, with sales likely to grow by about 99% year-over-year, while Xpeng’s trades at about 19x projected 2021 revenues, with sales likely to expand by about 140%.

[10/30/2020] How Do Chinese EV Players Compare?

The Chinese electric vehicle (EV) space is booming, with China-based manufacturers accounting for over 50% of global EV deliveries. Demand for EVs in China is likely to remain robust as the Chinese government wants about 25% of all new cars sold in the country to be electric by 2025, up from roughly 5% at present. ^[1] While Tesla is a leader in the Chinese luxury EV market driven by production at its new Shanghai facility,  Nio (NYSE:NIO), Xpeng (NYSE: XPEV), and Li Auto (NASDAQ: LI) – three relatively young U.S. listed Chinese electric vehicle players, have also been gaining traction. In our analysis  Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? we compare the financial performance and valuation of the major U.S. listed Chinese electric vehicle players. Parts of the analysis are summarized below.

Overview Of Nio, Li Auto & Xpeng’s Business

Nio, which was founded in 2014, currently offers three premium electric SUVs, ES8, ES6, and EC6, which are priced starting at about $50k.  The company is working on developing self-driving technology and also offers other unique innovations such as Battery as a Service (BaaS) –  which allows customers to subscribe for car batteries, rather than paying for them upfront. While the company has scaled up production, it hasn’t come without challenges, as it recalled about 5,000 vehicles last year after reports of multiple fires.

Li Auto sells Extended-Range Electric Vehicles, which are essentially EVs that also have a small gasoline engine that can generate additional electric power for the battery. This reduces the need for EV-charging infrastructure, which is currently limited in China.  The company’s hybrid strategy appears to be paying off – with its Li ONE SUV, which is priced at about $46,000 – ranking as the top-selling SUV in the new energy vehicle segment in China in September 2020. The new energy segment includes fuel cell, electric, and plug-in hybrid vehicles.

Xpeng produces and sells premium electric vehicles including the G3 SUV and the P7 four-door sedan, which are roughly positioned as rivals to Tesla’s Model Y SUV and Model 3 sedan, although they are more affordable, with the basic version of the G3 starting at about $22,000 post subsidies. The G3 SUV was among the top 3 Electric SUVs in terms of sales in China in 2019. While the company began production in late 2018, initially via a deal with an established automaker, it has started production at its own factory in the Guangdong province.

How Have The Deliveries, Revenues & Margins Trended

Nio delivered about 21k vehicles in 2019, up from about 11k vehicles in 2018. This compares to Xpeng which delivered about 13k vehicles in 2019 and Li Auto which delivered about 1k vehicles, considering that it began production only late last year. While Nio’s deliveries this year could approach about 40k units, Li Auto and Xpeng are likely to deliver around 25k vehicles with Li Auto seeing the highest growth. Over 2019, Nio’s Revenues stood at $1.1 billion, compared to about $40 million for Li Auto and $330 million for Xpeng. Nio’s Revenues are likely to grow 95% this year, while Xpeng’s Revenues are likely to grow by about 120%. All three companies remain deeply lossmaking as costs related to R&D and SG&A remain high relative to Revenues. Nio’s Net Margins stood at -195% in 2019, Li Auto’s margins stood at about -860% while Xpeng’s margins stood at -160%. However, margins are likely to improve sharply in 2020, as volumes pick up.

Valuation

Nio’s Market Cap stood at about $37 billion as of October 28, 2020, with its stock price rising by about 7x year-to-date due to surging investor interest in EV stocks. Li Auto and Xpeng, which were both listed in the U.S. around August as they looked to capitalize on surging valuations, have a market cap of about $15 billion and $14 billion, respectively. On a relative basis, Nio trades at about 15x projected 2020 Revenues, Li Auto trades at about 12x, while Xpeng trades at about 20x.

Although valuations are certainly high, investors are likely betting that these companies will continue to grow in the domestic market, while eventually playing a larger role in the global EV space leveraging China’s relatively low-cost manufacturing, and the country’s ecosystem of battery and auto parts suppliers. Of the three companies, Nio might be the safer bet, considering its slightly longer track record, higher Revenues, and investments in technology such as battery swaps and self-driving. Li Auto also looks attractive considering its rapid growth – driven by the uptake of its hybrid powertrains – and relatively attractive valuation of about 12x 2020 Revenues.

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1. China races ahead in electric vehicles, Financial Times [↩]