Should investors be looking at the ‘Tesla of China’ or other electric mobility companies in the red hot electrical vehicle industries?
The electrical revolution is underway in the world’s most populated country as it plans to dramatically cut its carbon dioxide emissions and become carbon neutral by 2060. We look at two Chinese electrical vehicle (EV) companies tackling different segments of the EV market and ask which is the better buy?
Niu: Bull vs Bear arguments:
Niu (NASDAQ: NIU) claims to be the “worlds leading provider of smart urban mobility solutions”.
Due to the pandemic, there has been a rise in people looking for alternative ways to commute rather than using public transport. Niu has helped fill this gap with its e-scooters and other products, and Li believes this trend is here to stay.
Niu reported strong Q1, 2021 results, with revenue increasing by 135% year-over-year (YoY) to approximately $84 million. This was driven by strong e-scooter sales, which surged by 272% YoY. Niu continues to expand its production capacity, which is set to double this year to two million units, with a sales forecast for 2021 to be in the region of one million units.
In 2020, Niu implemented its Niu 2.0 strategy, which aims to expand its product portfolio and sales network expansion. In Q1, Niu introduced new products in China such as Mopeds and internationally with its first electric kick scooter for Europe and the U.S. It also has “tens of new products in the pipeline”, according to Li. Furthermore, it continues to expand its retail footprint in China, opening its 2,000th store in Q1 and is opening 300 more in the coming quarter. The early signs demonstrate that this strategy is paying off with solid growth since Niu 2.0 commenced.
Outside of China, its sale volume declined by 15% YoY to 5,000 in the quarter, with management stating that this is due to lockdowns. If there is no uptick in sales internationally, it does not bode well for its future growth prospects outside of China.
Niu also faces intense competition, particularly as it transitions from high-end to mid-end vehicles, hurting its financials. This can already be seen in the decline in its revenue per scooter, which has fallen below 2018 levels. The company also reported a net loss in the quarter due to stock-based compensation.
NIO: Bull vs Bear arguments:
NIO’s (NYSE: NIO) stock price has been highly volatile since its IPO in 2018, warning in early 2020 that it may be unable to continue due to a lack of funding. However, since being bailed out, its stock and the company has flourished.
In Q1 of 2021, NIO reported revenue of approximately $1.2 billion, an increase of 481% YoY. Its gross margin also expanded from a negative 12% a year before to 19.5% in Q1. However, investors should be aware that these comparisons from a year ago were when the company was in financial difficulty. It also reported a record quarterly delivery number of 20,060, which is encouraging. CEO William Li also stated that demand remains strong.
NIO also launched a battery as a service (BaaS) subscription in 2020. Customers can buy a car without the battery for a lower price and then use the charging and swapping stations. This provides an additional source of income for the company, and in Q1, the other sales segment generated $88 million, an increase of 395% YoY. This was predominantly due to the upgrades of its power swap stations which reduced the swapping time to 3 minutes and increased capacity.
However, NIO is unprofitable and reported a net loss of $68.8 million in the latest quarter but was still significantly less than its Q1 2020. The company is also richly valued with a market cap of roughly $74 billion despite its rapid growth.
The competition in the EV space is fierce, with Tesla leading the disruption. In addition, legacy automakers such as Volkswagen and Ford have turned their attention to the EV space and possess more extensive production capabilities and cash reserves than Nio.
So, which stock is a better buy right now?
NIO appears to be a better buy right now despite its rich valuation and previous financial troubles. It has proven its ability to deliver cars, and its battery as a service model could provide steady future growth. Whereas Niu is a small company with lower barriers to entry compared to Nio, and its international expansion remains unproven.
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