Here’s why China-based electric vehicle stocks such as Niu and XPeng should be on the buying radar of growth investors at current valuations
Oct. 30, 2021
Companies part of the electric vehicle or EV segment have the potential to increase your wealth at an accelerated pace. We have also seen how Tesla became one of the fastest companies to reach a trillion-dollar valuation. But the EV market is still at a nascent stage and is poised to snowball on the back of rising demand for clean-energy solutions, government subsidies, and higher consumer demand. China is at the forefront of this global shift and is already the leading EV market currently. Keeping these factors in mind, let’s see why XPeng (NYSE: XPEV) and Niu (NASDAQ: NIU) are the two best electric vehicle stocks to buy right now.
A company valued at a market cap of $42.7 billion, XPeng stock has more than doubled its returns since its IPO last August. However, it’s also down 36.4% from record highs, allowing investors to buy a quality growth stock at a lower multiple.
Shares of XPeng gained momentum recently after the company disclosed plans to mass-produce a flying car by 2024. The vehicle will be priced at $157,000, allowing XPeng to grow its revenue base in the future. XPeng also stated it would invest in expanding its network of charging stations, allowing EVs to drive 125 miles after they are charged for just five minutes.
We can see that XPeng’s ambitious plans will allow it to increase its top-line at a significant rate. It already increased sales in Q2 by 536.7% year over year to $583.2 million as vehicle deliveries increased by 439% to 17,398 units. XPeng confirmed it has shipped more than 100,000 units to date, making it one of the fastest EV companies to reach the milestone.
However, XPeng ended Q2 with a gross margin of just 11.2% and reported an adjusted net loss of $0.22 per share. It will continue to burn money going forward as its part of a capital-intensive business and the company’s plans to expand product offerings. If XPeng raises equity capital, shareholder wealth will be diluted, which may negatively impact its stock price.
Another China-based company, Niu, has been flying under the radar. This mid-cap stock is valued at a market cap of $1.96 billion. NIU stock has almost tripled since its IPO in October 2018, but it’s also down 50% from all-time highs.
A company that manufactures electric scooters, NIU has increased its revenue by over 550% in the last five years. Most of these sales have been derived from China, but NIU has now trained its guns to expand in other markets, including Europe, North America, and Southeast Asia.
Wall Street expects Niu sales to rise by 59.5% to $606 million in 2021 and 47.2% to $892 million in 2022. Unlike most other EV companies, Niu already reports an adjusted profit, and its earnings are forecast to expand from $0.41 per share in 2020 to $1.04 per share in 2022.
Niu is a profitable growth stock that is also undervalued, a combination that is extremely difficult to find. The only major threat associated with the company is that China-based entities are viewed as high-risk investments due to the lack of transparency in the government’s policies.