Which One to Pick, NIO or Xiaopeng Motors?

With the continuous expansion of the global electric vehicle market, investors' interest in electric vehicle companies also increased sharply last year. There are more and more electric vehicle companies that investors can choose to invest in U.S. stocks. The two most significant companies are NIO (NIO) and Xiaopeng Motors (XPEV). This article analyzes these two electric vehicle companies to see which one is a "better" investment. NIO vs. Xiaopeng Motors In the prior year, the stock prices of Xiaopeng Motors and NIO have risen sharply, which has led to many new investors' interest in electric car stocks. It can be seen from the stock prices of companies such as Tesla (TSLA), but it can also be seen from the stock prices of NIO and Xiaopeng Motors. Currently, NIO's and Xiaopeng Motors' share prices are $32 and $23, with market capitalizations of $52.37B and $18.94B, respectively. Although they are still far away from Tesla's $556.44B market value, NIO and Xiaopeng Motors have already belonged to relatively high market value electric vehicle companies in the U.S. stock market. The share prices of these two companies have experienced substantial increases, so a question arises, is the valuation brought about by this substantial increase reasonable? Indeed, some people agree, and some people disagree because these two companies are increasing. Such high valuations are certainly reasonable, but on the other hand, neither of these two companies are yet profitable. The current forecast shows that they will not be profitable until 2022. Next, we will further study the valuation of these two companies. China's fast-growing electric vehicle market China is one of the world's largest electric vehicle markets and the world's largest automotive market. The Chinese government has an ambitious goal to increase the number of electric vehicles, partly because of the need to reduce local emissions in order to cope with the smog problem. On the other hand, because China's middle class is growing rapidly, this is the main driving force for consumption. It is also conducive to promoting the consumption of electric cars and other cars. In 2020, China's electric vehicle sales will be 1.3M, accounting for about 40% of the global electric vehicle market. It is predicted that China's electric vehicle sales will increase by 50% by 2021, and China's electric vehicle sales are expected to reach 2M this year. The rapid growth of the domestic market is the main driving force for the sales growth of NIO and Xiaopeng. In 2020, NIO's sales reached 44,000, but this year's growth is expected to be even greater. Because NIO's goal is to sell more than 20,000 vehicles in the first quarter, which is equivalent to more than 80,000 vehicles for the whole year, we expect NIO's sales to increase in the second and fourth quarters. This year, NIO's Sales may reach at least 100,000 vehicles. On the other hand, Xiaopeng Automobile's sales in 2020 reached 27,000. According to Xiaopeng Automobile's forecast, its sales will reach at least 12,500 in the first quarter of this year, considering seasonal factors and the next few quarters. With a further increase in production, we expect Xiaopeng Motors' sales this year will likely be more than double. Looking at the forecasts of Wall Street analysts, we know that it is not unusual for these two companies to achieve substantial growth this year. On the contrary, Wall Street analysts believe that NIO and Xiaopeng Auto will achieve further strong growth in 2022. Analysts predict that NIO's revenue this year is expected to grow to $5.4B, another 59% in 2022, and $12.5B in 2023 (a 45% increase from the expected revenue in 2022). Analysts predict that Xiaopeng Motors' revenue this year will reach $2.1B (an increase of 130% over 2020), and its revenue will reach $4.2Bin 2022, an increase of 100%. Among the two companies, NIO is the larger company in terms of vehicle delivery volume and revenue, which is also reflected in its higher valuation. However, with expected solid growth, Xiaopeng Motors will also become a more significant player in this field in the next few years. In terms of market share, one out of every 20 electric cars sold in China is NIO. At the same time, Xiaopeng Motors is relatively small, with only one out of every 35 electric cars being Xiaopeng Motors. In the domestic market, these two companies have larger counterparts, including Tesla. Still, at the same time, NIO and Xiaopeng Auto are growing faster than the industry itself. This should lead to further growth in the two companies' market share in the next few years. Since both companies are constantly launching new models and are making active growth plans, we expect that both companies will continue to gain greater market share in the next few years. Delivery (2020) Delivery (2021) Revenue (2021) Growth in Revenue (2022) NIO 44,000 100,000 $5.4B 59% XIAOPENG MOTORS 27,000 50,000 $2.1B 100% Advantages of NIO and Xiaopeng Motors In the highly competitive electric vehicle market, both companies are trying to differentiate themselves from their competitors. Why should consumers buy NIO and not others? The main reason is that one of NIO's biggest selling points is its battery replacement technology and BAAS service. This service allows consumers to replace the battery within a few minutes, which solves consumers' worries about frequent charging or too long charging time. NIO's technology has been tested and used millions of times in China. At least there is a dense battery exchange network in the geographical area where consumers live and travel, and charging is not a problem. Moreover, such a network does not yet exist outside of China. This advantage clearly differentiates NIO from other automakers in the domestic market. On the other hand, Xiaopeng Motors is also working hard to build a "smart electric car" brand. It focuses on research and development and strives to bring intelligent technologies such as advanced driver assistance systems to consumers. This strategy is mainly targeted at younger generations. So far, Xiaopeng Motors has become one of China's most popular electric car manufacturers. Still, its products are not as unique as NIO's BAAS service. Valuation of NIO and Xiaopeng Motors Since these two companies are not yet profitable, we cannot use the P/E ratio to forecast their value. But we can infer whether their respective stock prices are reasonable by observing their revenue. NIO's current valuation is about 4.5 times its expected revenue in 2023, while Xiaopeng Motor's valuation is about 2.5 times its expected revenue in 2023. Compared with Tesla, its valuation is about 7 times its expected revenue in 2023. However, the valuations of NIO and Xiaopeng Motors are much more expensive than traditional automakers. These traditional automakers have an increasing share of the electric vehicle market (including Volkswagen). Still, their stock prices are much lower. It is not difficult to anticipate that their sales volume growth in the future. Invest in NIO or Xiaopeng Motors? Obviously, these two companies are in the growth stage. They have been benefited from China's preferential policies for domestic companies in all aspects. It is foreseeable that both NIO and Xiaopeng Motors will continue to maintain good operating conditions. More importantly, although both NIO and Xiaopeng Motors have achieved relatively strong growth rates, their costs are relatively low. At the same time, we cannot say that these two companies are not expensive, and their stock prices are still higher than traditional car companies. NIO has made more remarkable progress in business development and has a unique BAAS service, making the most apparent difference between it and its peers. We believe that NIO's products are generally more advantageous and valuable than Xiaopeng Motors. The positioning and advantages of Xiaopeng Motors are not so obvious. Due to its small scale, it may experience more growing pains in the next few years. However, we don't think NIO's stock is a good choice from the perspective of valuation. However, we are more optimistic about NIO's stock than Xiaopeng Motors (compared to Tesla, we are more optimistic about NIO and Xiaopeng cars).

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Which One to Pick, NIO or Xiaopeng Motors?

May 15, 2021

bullish

fundamentals Analysis

[6 min Read]

blog post cover photo

With the continuous expansion of the global electric vehicle market, investors' interest in electric vehicle companies also increased sharply last year. There are more and more electric vehicle companies that investors can choose to invest in U.S. stocks. The two most significant companies are NIO (NIO) and Xiaopeng Motors (XPEV). This article analyzes these two electric vehicle companies to see which one is a "better" investment.

NIO vs. Xiaopeng Motors

In the prior year, the stock prices of Xiaopeng Motors and NIO have risen sharply, which has led to many new investors' interest in electric car stocks. It can be seen from the stock prices of companies such as Tesla (TSLA), but it can also be seen from the stock prices of NIO and Xiaopeng Motors.

Currently, NIO's and Xiaopeng Motors' share prices are $32 and $23, with market capitalizations of $52.37B and $18.94B, respectively. Although they are still far away from Tesla's $556.44B market value, NIO and Xiaopeng Motors have already belonged to relatively high market value electric vehicle companies in the U.S. stock market.

The share prices of these two companies have experienced substantial increases, so a question arises, is the valuation brought about by this substantial increase reasonable? Indeed, some people agree, and some people disagree because these two companies are increasing. Such high valuations are certainly reasonable, but on the other hand, neither of these two companies are yet profitable. The current forecast shows that they will not be profitable until 2022. Next, we will further study the valuation of these two companies.

China's fast-growing electric vehicle market

China is one of the world's largest electric vehicle markets and the world's largest automotive market. The Chinese government has an ambitious goal to increase the number of electric vehicles, partly because of the need to reduce local emissions in order to cope with the smog problem. On the other hand, because China's middle class is growing rapidly, this is the main driving force for consumption. It is also conducive to promoting the consumption of electric cars and other cars.

In 2020, China's electric vehicle sales will be 1.3M, accounting for about 40% of the global electric vehicle market. It is predicted that China's electric vehicle sales will increase by 50% by 2021, and China's electric vehicle sales are expected to reach 2M this year.

The rapid growth of the domestic market is the main driving force for the sales growth of NIO and Xiaopeng. In 2020, NIO's sales reached 44,000, but this year's growth is expected to be even greater. Because NIO's goal is to sell more than 20,000 vehicles in the first quarter, which is equivalent to more than 80,000 vehicles for the whole year, we expect NIO's sales to increase in the second and fourth quarters. This year, NIO's Sales may reach at least 100,000 vehicles.

On the other hand, Xiaopeng Automobile's sales in 2020 reached 27,000. According to Xiaopeng Automobile's forecast, its sales will reach at least 12,500 in the first quarter of this year, considering seasonal factors and the next few quarters. With a further increase in production, we expect Xiaopeng Motors' sales this year will likely be more than double.

Looking at the forecasts of Wall Street analysts, we know that it is not unusual for these two companies to achieve substantial growth this year. On the contrary, Wall Street analysts believe that NIO and Xiaopeng Auto will achieve further strong growth in 2022.

Analysts predict that NIO's revenue this year is expected to grow to $5.4B, another 59% in 2022, and $12.5B in 2023 (a 45% increase from the expected revenue in 2022).

Analysts predict that Xiaopeng Motors' revenue this year will reach $2.1B (an increase of 130% over 2020), and its revenue will reach $4.2Bin 2022, an increase of 100%.

Among the two companies, NIO is the larger company in terms of vehicle delivery volume and revenue, which is also reflected in its higher valuation. However, with expected solid growth, Xiaopeng Motors will also become a more significant player in this field in the next few years.

In terms of market share, one out of every 20 electric cars sold in China is NIO. At the same time, Xiaopeng Motors is relatively small, with only one out of every 35 electric cars being Xiaopeng Motors. In the domestic market, these two companies have larger counterparts, including Tesla. Still, at the same time, NIO and Xiaopeng Auto are growing faster than the industry itself. This should lead to further growth in the two companies' market share in the next few years. Since both companies are constantly launching new models and are making active growth plans, we expect that both companies will continue to gain greater market share in the next few years.

Delivery (2020)

Delivery (2021)

Revenue (2021)

Growth in Revenue (2022)

NIO

44,000

100,000

$5.4B

59%

XIAOPENG

MOTORS

27,000

50,000

$2.1B

100%

Advantages of NIO and Xiaopeng Motors

In the highly competitive electric vehicle market, both companies are trying to differentiate themselves from their competitors. Why should consumers buy NIO and not others? The main reason is that one of NIO's biggest selling points is its battery replacement technology and BAAS service. This service allows consumers to replace the battery within a few minutes, which solves consumers' worries about frequent charging or too long charging time.

NIO's technology has been tested and used millions of times in China. At least there is a dense battery exchange network in the geographical area where consumers live and travel, and charging is not a problem. Moreover, such a network does not yet exist outside of China. This advantage clearly differentiates NIO from other automakers in the domestic market.

On the other hand, Xiaopeng Motors is also working hard to build a "smart electric car" brand. It focuses on research and development and strives to bring intelligent technologies such as advanced driver assistance systems to consumers. This strategy is mainly targeted at younger generations. So far, Xiaopeng Motors has become one of China's most popular electric car manufacturers. Still, its products are not as unique as NIO's BAAS service.

Valuation of NIO and Xiaopeng Motors

Since these two companies are not yet profitable, we cannot use the P/E ratio to forecast their value. But we can infer whether their respective stock prices are reasonable by observing their revenue.

NIO's current valuation is about 4.5 times its expected revenue in 2023, while Xiaopeng Motor's valuation is about 2.5 times its expected revenue in 2023. Compared with Tesla, its valuation is about 7 times its expected revenue in 2023. However, the valuations of NIO and Xiaopeng Motors are much more expensive than traditional automakers. These traditional automakers have an increasing share of the electric vehicle market (including Volkswagen). Still, their stock prices are much lower. It is not difficult to anticipate that their sales volume growth in the future.

Invest in NIO or Xiaopeng Motors?

Obviously, these two companies are in the growth stage. They have been benefited from China's preferential policies for domestic companies in all aspects. It is foreseeable that both NIO and Xiaopeng Motors will continue to maintain good operating conditions. More importantly, although both NIO and Xiaopeng Motors have achieved relatively strong growth rates, their costs are relatively low.

At the same time, we cannot say that these two companies are not expensive, and their stock prices are still higher than traditional car companies. NIO has made more remarkable progress in business development and has a unique BAAS service, making the most apparent difference between it and its peers. We believe that NIO's products are generally more advantageous and valuable than Xiaopeng Motors. The positioning and advantages of Xiaopeng Motors are not so obvious. Due to its small scale, it may experience more growing pains in the next few years.

However, we don't think NIO's stock is a good choice from the perspective of valuation. However, we are more optimistic about NIO's stock than Xiaopeng Motors (compared to Tesla, we are more optimistic about NIO and Xiaopeng cars).

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NIO

NIO Inc.

22.34

-0.61
-2.66%

Return

-
Position Return %
0.00
Position Return
33.42
Price When Posted

Metrics

41.78
Target Price
10/ 10
Confidence
6-12 Months
Timeframe
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Earnings Per Share
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Financials
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Management
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