Electric vehicle (EV) stocks were among the biggest winners of 2020. And even as people begin to question the valuations these companies have achieved due to the exuberance of investors, they remain higher.
Tesla (NASDAQ: TSLA) has received a lot of publicity, so it may surprise you that the shares of the Chinese EV manufacturer NIO (NYSE: NIO) has outperformed those of Tesla in the past year. This makes it worthwhile to investigate whether NIO is still a buyout for 2021.
NINE ET7 luxury sedan. Image source: NIO.
Investors’ enthusiasm
Tesla’s meteoric rise has been the subject of much news in recent years, prompting speculative investors to search for ‘the next Tesla’. One of the obvious places to look was the largest car market in the world. Already in early 2020, NIO’s business bankruptcy flowed. But pressure from the Chinese government to accelerate growth in the country’s EV industry has contributed to strong sales growth, and investors have piled up.
NIO data by YCharts
As the stock rose, the company also benefited from raising the necessary capital. This diluted existing shareholders, as evidenced by the faster growth of enterprise value compared to the share price.
Steady pace of growth
Although not growing as fast as the share price itself, NIO’s business is growing very fast. Vehicle deliveries increased by 113% in 2020 compared to the previous year. 2020 represents almost 60% of the company’s total delivery.
But at just under 44,000 vehicles, it’s still less than 1/10 of Tesla’s 2020 volume. NIO expands its product range with a new luxury sedan announced during the recent “NIO Day” offering. The ET7, which will be the first sedan from NIO, has a new, larger 150 kWh battery pack. According to the company, it will have a maximum range of about 621 miles. This is beyond Tesla’s Model S maximum range of 402 miles, as well as the Lucid Motors Air sedan range of 517 miles.
Market opportunity
EV sales in China exceeded 1 million in 2020, and the government aims to expand it to 5 million by 2025. The number could be 10 million by 2030 and closer to 20 million by 2040, according to the research organization. BloombergNEF.
However, competition is also increasing. Tesla just unveiled its first model Y-SUV from its Shanghai factory just this month. Other Chinese EV companies are also growing at three-digit rates, so NIO is far from being the leader in the country. Warren Buffett Supported BYD (OTC: BYDDY) sold nearly 131,000 battery-powered electric vehicles in 2020, and more than 460,000 vehicles in total.
There is clearly more room for exponential growth in vehicle sales in the coming years, and NIO’s introduction on ET7 shows that the company is playing a major role. NIO also innovates with a battery exchange program that allows customers to ‘recharge’ via a faster battery exchange. The company says that the automatic battery exchange stations only take three minutes before the battery is completely replaced.
Will the stock follow?
As with other names like Tesla, the question investors are struggling with is the valuation of the stock. NIO’s total revenue for 2020 in the third quarter was nearly $ 1.5 billion, and the full year 2020 should approach $ 2.5 billion.
But the company has not made a profit yet, so it’s a better way to evaluate valuation if we look at a price-to-sales ratio. With a current market capitalization of about $ 100 billion, NIO is trading nearly 40 times the 2020 sales, and the estimate is about 20 times the 2021 sales.
According to the benchmark, it is valued higher than Tesla. Given the competition and uncertainty ahead, there are more negative risks than upside potential in NIO equities.
Investors are betting on the huge market potential for EV growth. If all goes well for NIO, stocks could perform better from here on out. But if you add it to a portfolio today, you also need to be prepared for excessive losses. This is the definition of a speculative investment.