Tesla vs. Geely: Which Electric Vehicle Manufacturer is a Better Buy?
The electric vehicle (EV) industry is growing at a rapid pace and as such is attracting the entrance of established manufacturers, such as the China-based Geely (GELYY). But are these new entrants in general, and Geely specifically, able to threaten Tesla's (TSLA) leadership position? Read on.
One of the hottest industries in which to invest currently is electric vehicles (EVs). As the globe inches towards clean energy production and consumption, companies within the EV space are poised to grow at an accelerating pace.
While 2020 was a breakthrough year for EV stocks, several EV companies have underperformed the market this year, allowing investors to buy growth stocks at more attractive valuations.
Let’s see which stock is a better EV buy right now:
Tesla continues to surprise Wall Street
In the first quarter, Tesla sales were up 74% year over year, driven primarily by a 109% increase in vehicle deliveries. Its net income also surged to record highs on the back of regulatory credits.
In Q1, Tesla increased deliveries of its low-cost Model 3 and Y by an impressive 140% year over year to 182,338 units. However, deliveries of its higher-priced Model S and X vehicles were down 83%, at 2,030 units, in Q1 because Tesla put the production of these vehicles on hold and aims to launch newer versions of the models in coming months.
Tesla reported $438 million in net income, or $0.93 per share, in the first quarter. This included a $101 million gain associated with its sale of Bitcoin. It also reported $518 million in sales of regulatory credits. Tesla bought $1.5 billion worth of digital assets in the quarter. Absent the above-referenced sales, Tesla would have reported a $181 million loss in Q1.
Tesla has pumped in $1.35 billion in capital expenditures and began construction in two new factories in Berlin and Texas. Once these projects are complete the company should benefit from positive free cash flows over time.
Even though Tesla continues to use unconventional methods to boost its bottom-line, it remains one of the best stocks in the EV sector. It is on track to increase its vehicle deliveries by more than 50% year over year in 2021. The company’s management also confirmed it has sufficient liquidity to fund its expansion plans without having to raise additional capital.
Geely stock is down 42% from 52-week highs
An investment holding company, Geely operates as an automobile manufacturer in China. It develops , produces, markets, and sells automobiles and automobile parts and related components. Geely manufacturers sedans, wagons, and sport utility cars.
Geely is an established automobile manufacturer that is now eyeing the lucrative EV space. Earlier this year, China’s tech giant Baidu disclosed that it will partner with Geely Automobiles to manufacture smart EVs. Baidu will provide intelligent driving capabilities while Geely will leverage its design and manufacturing expertise.
But while Tesla is growing its top line at an enviable pace, Geely has seen its sales decline to RMB 92 billion in 2020 from RMB 106.59 billion in 2018. Its EBITDA has also fallen, to RMB 11.83 billion in this period from RMB 17.24 billion. And Geely’s EBITDA margin has fallen to 12.8% in 2020 from 16.2% in 2018.Geely has attributed the sales decline to China’s weak passenger vehicle market. While its sales volume was down 10% year over year in 2019, it fell by another 6% in 2020. This is in-part why its stock is trading 42% below its 52-week high.
The final takeaway
While Tesla is the largest EV manufacturer in the world, Geely is still trying to gain a foothold in this nascent industry. In terms of valuation, Tesla is trading at a far higher multiple than Geely. For example, Tesla’s trailing price to sales multiple stands at 20.5x, while Geely is valued at less than two times trailing sales.
But Tesla’s robust revenue forecast and expanding profit margins can support this lofty valuation, making it a better investment bet right now.
TSLA shares . Year-to-date, TSLA has declined -5.97%, versus a 12.45% rise in the benchmark S&P 500 index during the same period.
Tesla is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders' families.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.Tesla vs. Geely: Which Electric Vehicle Manufacturer is a Better Buy? appeared first on StockNews.com