The auto industry is in the midst of a fundamental change, as a combination of technological advances and social-political pressures is pushing a shift toward electric vehicles (EVs). As recently as a decade ago, such a change would have been inconceivable; battery and electric motor technology, along with component materials, were simply not up to the competition.
The automotive landscape has changed, however. New body materials, better electric motors, more powerful and longer-lasting batteries – all of these have made electric cars more competitive with gasoline vehicles. And nowhere is that clearer than in China. The Asian giant is already the world’s largest car market, and its government has taken a leading role in promoting the EV transition.
Against the backdrop, Bank of America analyst Ming-Hsun Lee, an expert in the Chinese EV stocks, offers valuable insights into the industry’s dynamics. Lee looked ‘under the hood’ at two leading Chinese EV companies, Nio (NYSE:NIO) and XPeng (NYSE:XPEV), and laid out the details on their current status and likely forward path. The result is a clear conclusion on which one is the superior EV stock for investors to buy today. Let’s take a closer look.
Nio, Inc. (NIO)
We’ll start with Nio, one of the leaders in China’s EV sector. The company was founded in 2014, and it began regular production runs of its first two vehicle models in 2019. Today, Nio has 9 cars in production and on the market, including 2 sedans and 5 SUVs, in both the full- and mid-size classes.
Nio prides itself on the styling and long battery range of its vehicles, important features for an automaker to promote, but the company also offers a feature that sets it apart from the competition. Nio has made battery replenishment easy with its Battery-as-a-Service model. Building on the software subscription model, Nio makes battery switches and replacement easy for subscribers. The company operates a network of service stations, and BaaS subscribers can pull in, change a low battery for a full one, and drive away. It’s billed as a convenient alternative to spending long periods at the charging stations.
In addition to its battery service, Nio is also experimenting with assisted and intelligent driving, with the aim of creating an Autonomous Driving-as-a-Service program. Nio’s commitment to blending the latest technology into the driving experience is how the company aims to differentiate itself from its competitors.
Early this month, Nio released its delivery numbers for February. The total came to 8,132 vehicles delivered in the month; this number was split between 4,765 SUV models and 3,367 sedans. As of February 29, 2024, Nio has delivered a cumulative total of 467,781 EVs to its customers. This is an addition of 18,187 vehicles, or 4%, since December 31, 2023.
On earnings, Nio’s 4Q23 report, the last released, showed US$2.4 billion in total revenues, up 6.5% year-over-year and US$70 million ahead of the forecast. The company is currently operating at a net loss, which in Q4 came to 39 cents per share by non-GAAP measures. This loss was 7 cents per share deeper than had been expected. As of December 31, 2023, the company had US$8.1 billion in cash and other liquid assets.
While Nio has a solid position for now in China’s EV market, analyst Lee is taking a cautious stance on the stock. He writes, “We have a Neutral [rating] on NIO, as (1) NIO does not have new models in 1-3Q24, therefore its volume sales growth could be lower than industry, (2) NIO may need to provide price discount on its existing models at a greater extent than cost reduction, and it may spend more on marketing campaign and sales network for new brands, leading to a lower margin. On the positive side, we still like NIO for (1) brighter volume sales outlook in 4Q24-2025 and (2) improving financial position.”
This Neutral (Hold) rating comes with a price target of US$6.50, suggesting that the Bank of America sector expert sees a 27% potential upside for the stock in the next 12 months. (To watch Lee’s track record, click here)
Overall, NIO stock gets a Moderate Buy from the analyst consensus, based on 15 recent reviews that include 7 Buys, 7 Holds, and 1 Sell. NIO shares are priced at $5.05 on Wall Street, and the $7.09 average price target is somewhat more bullish than the BofA view, implying a one-year gain of 40.5%. (See Nio stock forecast)
XPeng, Inc. (XPEV)
Next up is XPeng, another of the EV makers serving China’s car market. XPeng is based in the southern city of Guangzhou and has 5 EV models on the market; the company’s first model, the G3 electric SUV, entered production in late 2019 and was followed by the P7 sedan which began deliveries in 2020. The company’s latest model, the X9 7-seater, saw its initial deliveries begin this past January. The company’s customer-facing side includes a network of 500 stores operating in 181 cities across China.
XPeng markets its vehicles to the middle-class consumer, a growing demographic in China. The cars are designed with tech-savvy drivers in mind and feature both advanced driver-assistance tech and high-end in-car intelligent operating systems. These are integrated with cutting-edge powertrains and electrical/electronic architecture for optimal performance.
Vehicle owners have access to XPeng’s network of self-operated charging stations. This network includes 902 self-operated supercharging stations, along with 206 destination charging stations, for a total of 1,108 stations as of December 31, 2023.
This past February, the last month for which numbers are available, XPeng delivered a total of 4,545 of its Smart EVs. The new X9 saw 1,448 units delivered, which reached a total of nearly 4,000 deliveries in the first two months of the vehicle’s launch. This gives the new model a strong position in the MPV segment and in the three-row BEV segment. The company expects March to show an acceleration of X9 deliveries, now that the Chinese New Year holiday has passed.
Earlier this month, XPeng released its data for Q4 and full year 2023. The company’s total vehicle deliveries, as of December 31 last year, came to 60,158, up 170.9% over 12 months. The company saw US$1.84 billion in quarterly revenue for 4Q23, up 153.9% from 4Q22. At the bottom line, XPeng recorded a net loss of 28 cents per share, in US currency, by non-GAAP measures. This was better than had been expected, beating the estimates by 14 cents per share.
For Bank of America’s Lee, all of this adds up to a company worth looking at. He says of the stock, “We have a Buy rating on XPeng. We like its (1) early mover advantage in advanced driver assistance system (ADAS) development, which could convert into service revenue as evidenced by its cooperation with Volkswagen, (2) new model pipeline in 2024-2025 to improve volume sales growth, (3) improving product mix and cost control to enhance margin in 2024-25.”
Putting this stance into quantifiable terms, Lees’ Buy rating comes with a $13.50 price target that points toward a 42% upside on the one-year horizon.
Overall, XPEV stock gets a Moderate Buy from the analyst consensus, a rating based on 8 recent recommendations. These include 4 Buys, 3 Holds, and 1 Sell. The shares are trading for $9.42 and their $12.75 average price target implies a one-year upside potential of 35%. (See XPeng’s stock forecast)
And now analyst Ming’s choice is clear – if you’re looking for exposure to the Chinese electric car market, buy into XPeng as the superior EV stock.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
