EV sales are growing rapidly and these two Tesla competitors have vastly different approaches, but is NIO or Nikola a better investment
Sept. 13, 2021
Thanks to governments around the world enacting anti-gas-powered vehicle legislation over the past year, the market has witnessed surging electric vehicle (EV) sales and stock prices. An ETF that tracks the sector, Global X Autonomous & Electric Vehicles, is up over 65% in the last year and market leader, Tesla (NASDAQ: TSLA), has gained more than 75% in the same time period.
NIO (NYSE: NIO) and Nikola (NASDAQ: NKLA), two competitors to the EV giant, have had many ups and downs this year as well, but which is the better stock to buy right now?
NIO: Bull vs Bear Arguments
NIO’s stock price is up over 100% over the past 12 months and its revenue was up nearly 130% in Q2 2021. From the same time last year, vehicle sales rose to 21,869, surpassing expectations and marking a fantastic achievement, given the global chip shortage. The Chinese company will continue to enjoy tailwinds from government policy of having 50% of all new vehicle sales be “new-energy” vehicles by 2035 and the other half to be hybrids. That number was only 5% in 2019 and such a large increase will certainly benefit the company.
With all that said, there is some caution to take before investing. For example, NIO’s stock is highly overvalued. At $38 per share as of September 13, NIO’s market cap is more than $62 billion right now. This gives them a lofty price/sales ratio of close to 12 — though this is a marked improvement on Q1’s P/S ratio of 30.
The company holds a significant portion of market share in China — more than 3% of all auto sales in 2020. However, with stronger companies like BYD occupying the top spot — not to mention foreign companies like GM, VW, BMW, and the almighty Tesla selling more vehicles as well — NIO has its work cut out. These companies have more money in their coffers and are all profitable, unlike NIO, so they’re all forces to be reckoned with.
Nikola: Bull vs Bear Arguments
In May, Nikola signed a deal that could result in an order of 100 trucks from Total Transportation Services. The company said it will start delivering trucks before the end of 2021 and plans to develop battery electric vehicles (BEV), hydrogen fuel cell electric vehicles (FCEV), and heavy-duty trucks.
Nikola has also made progress in building manufacturing factories in Arizona and Germany, expecting to start trial production in both in the next two months.
Now for the negatives, which are many… Nikola is still yet to report revenue and hasn’t even delivered its first truck. The firm has already revised down its projected 2021 revenue from $150 million to $30 million, with many believing $15 million is more likely.
One of the biggest things against Nikola was a short report from Hindenburg Research last year which revealed that their trucks did not move by themselves. The news sent the stock sliding but the firm said the findings were false and misleading. This bad run continued into 2021, with its share price falling 40% year-to-date, as of September 13.
Which stock is a better buy right now?
The best choice of the two is obviously NIO, a company that has solid revenue, sales, and a good stock price that is expected to further swell in the near future. Nikola, shamelessly using Tesla’s first name, is years from making a sale, let alone turning a profit, so steer clear until it has a successful product launch, at the very least.