NIO vs. Li Auto: Which Chinese Electric Vehicle Stock is the Better Investment?

With oil prices rising, consumers are more and more likely to look toward purchasing electric vehicles (EVs), bringing a fresh boost to the already vibrant EV industry.  While up-front costs of EVs are higher than gasoline-powered automobiles, it costs less to charge lithium batteries than to fill a gas tank…

NIO Inc. (NIO) and Li Auto Inc. (LI), two innovative Chinese companies, are looking to gain market share in the fast-growing EV market. While both companies are not yet profitable, let’s see which stock is a better investment in the long-term.

NIO Inc. (NIO):

NIO is a pioneer in China’s premium electric vehicle market. The company manufactures smart and connected electric vehicles and parts. NIO also provides assisted-driving features, known as NIO Pilot and offers charging solutions to its electric vehicles. NIO’s main products include an electric formula race car along with its ES8, ES6, and EC6 models for the general public. More interestingly, the company recently launched its ET7 model, its first smart electric sedan.

After NIO’s prolific 2020 performance, when the company’s market capitalization soared nearly 11x, NIO’s shares are trading – 3% in 2021.

Yet, the company’s strong growth profile is far from over. In June 2021, NIO reported that it delivered a new monthly record of 8,083 vehicles, representing an increase of 116.1% year-on-year and supplied 117,597 vehicles, since its inception in 2014.

In spite of that, NIO’s is still losing money and it is still struggling to post a profit. Indeed, while net sales have more than double year-on-year to 35b CNY, the company has not reduced its year-on-year loss that is expected to reach an intimidating negative 5.36b CNY by the end of the year, due mainly to the doubling of NIO’s Capex, up to 2.45b CNY.

Nevertheless, the company has strong investors that include Tencent, Baidu, Sequoia, and Warburg Pincus. Besides, NIO’s net cash position is comfortable for now, with 25.2b CNY on hand, the company could last for the next five year all other things being equal.

Furthermore, Wall Street analysts are not that optimistic on NIO’s stock future, with an average target price of $41.54. NIO is currently trading at about $47, which is 17% above the average target price.

In addition, NIO trades at a high valuation, with a 2021e EV/EBITDA of 14.5x and a P/B ratio of 19.9x, the company is overvalued compared to its peers.

Li Auto Inc. (LI):

Li Auto is also a China-based developer and manufacturer of EVs. Its main product is the Li ONE, a smart electric sport utility vehicle (SUV). The company also sells peripheral products and related services, including charging stalls and Internet connection services for vehicles. Unlike most other EV makers, Li Auto specializes in plug-in hybrid vehicles (PHEVs), which can be powered by either gasoline or electricity.

Share of the Chinese EV automaker gained 12% this year and its stock price has…

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