Better Buy for 2022: Li Auto vs. NIO
China is the largest EV market in the world, which means it makes sense for growth investors to consider adding stocks such as Li Auto (LI) and Nio (NIO) to...
China is the largest EV market in the world, which means it makes sense for growth investors to consider adding stocks such as Li Auto (LI) and Nio (NIO) to their portfolios. Both the stocks are trading significantly lower compared to all-time highs, but offer massive upside potential given their depressed valuations. Which stock is currently the better buy?.
After an impressive 2020, the rally electric vehicle (EV) stocks moderated in 2021. Further, the sell-off surrounding growth stocks has driven EV stocks significantly lower in 2022.
However, the long-term drivers for companies in this space remain intact, making stocks such as Li Auto (LI) and NIO (NIO) top buys at current prices. Shares of Li Auto are down more than 25% from all-time highs while NIO stock has slumped by 58% since mid-2021.
Both companies are based out of China, a country that accounts for more than a third of total EVs sold worldwide in 2021. Let's see which beaten-down EV stock is currently a better buy.
The bull case for Li Auto
Founded in 2015, Li Auto manufactured and shipped its first SUV in late 2019, called the Li ONE. It has delivered over 110,000 vehicles to date of which 76,400 were delivered in the first three quarters of 2021.
In Q3 of 2021, Li Auto reported sales of $1.2 billion which were up 230% year over year while its gross margin stood at 23.3%. Li ONE vehicles are hybrid in nature as the company uses an ICE (internal combustion engine) based range-extender that allows you to refuel vehicles in case the driver doesn't have access to a battery charger.
Li Auto estimates shipments in Q4 to range between 30,000 and 32,000 vehicles which will be 100% higher compared to the year-ago period. Its manufacturing facility already has an annual production capacity of 100,000 units which can be expanded to 200,000 units. The company has also begun constructing a new facility in Beijing which will start production in the next year.
Analysts tracking LI stock to report sales of $4 billion in 2021 and $7 billion in 2022. Comparatively, its loss per share is forecast to narrow from $0.28 in 2020 to $0.03 in 2022.
The bull case for NIO
One of the largest EV companies in the world, NIO has touched an annual production run-rate of 130,000 units. It now expects this figure to reach 600,000 by the end of 2022. NIO is optimistic about manufacturing around 50,000 units each month by December driven by strong demand for its existing line of vehicles as well as three new launches.
NIO delivered 24,439 vehicles in Q3 of 2021, which was an increase of 100% year over year. These numbers might take a hit in Q4 as the company was impacted by supply chain disruptions in October.
NIO introduced a battery-as-a-service offering two years back which lowers the upfront cost of an EV, while allowing customers to subscribe to a swappable battery program.
In the first six months of 2021, NIO accounted for 12% of total EVs shipped in China and the rapid adoption of these vehicles will be a key driver of growth going forward.
NIO is forecast to increase sales from $2.55 billion in 2020 to $9.9 billion in 2022. Its loss per share is forecast to narrow from $0.73 to $0.22 in this period.
We can see both NIO and Li Auto are expected to grow at a stellar pace. While NIO stock is valued at a forward price to 2022 sales multiple of 4.1x, the ratio for Li Auto is also similar at 4.2x. However, I believe Li Auto is currently a better investment, given its higher gross margins and narrower losses.
LI shares were trading at $29.40 per share on Thursday morning, down $0.73 (-2.42%). Year-to-date, LI has declined -8.41%, versus a -4.12% rise in the benchmark S&P 500 index during the same period.
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.
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