Electric vehicle sales are growing at a rapid pace and these two competitors to Tesla have vastly different approaches, but which is a better investment?
Joe Biden’s victory in this year’s election has been a catalyst for surging electric vehicle (EV) stock prices. An ETF that tracks the sector, Global X Autonomous & Electric Vehicles, is up nearly 20% since Election Day and market leader, Tesla, is up over 30% in the same time period. NIO (NYSE: NIO) and Nikola (NASDAQ: NKLA), two competitors to the EV giant, have seen some serious activity this year as well. Which is the better stock to buy right now?
NIO: Bull vs Bear Arguments
NIO’s stock price is up over 1,100% year-to-date (YTD) and its revenue is up nearly 150% in Q3 2020, from the same time last year; vehicle sales are up over 145%, a new company record. The Chinese company will face 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 a tenfold increase will certainly benefit the company, for which analysts project revenue of nearly $11 billion next year.
With all that said, there is some caution to take before investing. For example, NIO’s stock is highly overvalued, trading at 26 times this year’s sales. Additionally, the company is ninth in market share in China, 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. 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
Nikola has initiated a deal with GM for fuel cells for future trucks as well as perhaps manufacturing of the company’s Badger pickup truck (update on this below). The other recent bit of good news is in the form of the resignation of the company’s CEO, Trevor Milton, in light of fraud allegations. Milton was a hype-machine and blemish to the corporation, which is better off in his absence.
Now for the negatives. The first is that the company has no product, no sales, and zero revenue — it’s basically a vaporware firm. Secondly, the GM deal has been watered down considerably once reports of fraud surfaced by Hindenberg Research. One of the most egregious claims of fraud made by Hindenberg was that in one of its promotional videos, Nikola actually just let a truck roll downhill to showcase its performance; the company quickly confessed to the offense. No longer will GM be responsible for building the company’s most anticipated product, the Badger, and it will not take a $2 billion stake in the company.
Which stock is a better buy right now?
The best choice of the two is obviously NIO, a company that has solid revenue, sales, and a good stock price that is expected to further swell in the near future. Nikola, shamelessly using Tesla’s first name, is years from making a sale, let alone turning a profit, so steer clear. It seems like the market is sharing my sentiment. Just have a look at how EV companies have performed since the election:
|Company||$ on Nov 4||$ on Dec 2||% Change|
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