The electric vehicle (EV) industry remains optimistic despite challenges such as high costs related to expensive battery technology, limited model selection, and a shortage of trained technicians. Environmental concerns, expanding public charging infrastructure, and government incentives promise a positive demand outlook for EVs.
Notably, BloombergNEF forecasts a 21% rise in global EV sales to 16.7 million units by 2024. The Biden-Harris Administration allocated $15.50 billion to boost EV transitions, aiding factory retooling, job retention, and investing in domestic battery manufacturing. Hence, the global automotive industry is expected to reach $6.86 trillion by 2033, expanding at a CAGR of 6.8%.
Additionally, the IEA's Global EV Outlook 2024 predicts 17 million global EV sales in 2024, over 20% of total car sales. This growth is driven by EV prevalence, urbanization, infrastructure investment, safety innovations, manufacturer incentives, rising disposable incomes, anticipated interest rate reductions, and technological advancements.
However, not all stocks are positioned for long-term profitability. Let's compare two EV stocks, Tesla, Inc. (TSLA) and NIO Inc. (NIO).
The Case for Tesla, Inc. Stock
Tesla, Inc. (TSLA) designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems internationally. It operates in two segments, Automotive, and Energy Generation and Storage.
TSLA’s stock has declined 27.9% year-to-date to close the last trading session at $179.24.
TSLA’s revenue grew at a CAGR of 38.1% over the past three years.
In terms of forward non-GAAP P/E, TSLA’s 70.69x is 344% higher than the 15.92x industry average. Likewise, its 5.58x forward EV/Sales is 355.8% higher than the 1.22x industry average.
In terms of the trailing-12-month gross profit margin, TSLA’s 17.78% is 51.7% lower than the 36.80% industry average. Likewise, its 0.97x trailing-12-month asset turnover ratio is 2.8% lower than the 0.99x industry average.
TSLA’s total revenues for the fiscal fourth quarter ended December 31, 2023, decreased 8.7% year-over-year to $21.30 billion. Its adjusted EBITDA declined 20.7% from the year-ago value to $3.38 billion.
The company’s non-GAAP net income attributable to common stockholders decreased 47.6% over the prior-year quarter to $1.54 billion. Also, its EPS attributable to common stockholders came in at $0.45, down 47.1% year-over-year.
Street expects TSLA’s EPS and revenue for the quarter ending June 30, 2024, to decrease 34.1% and 2.8% year-over-year to $0.60 and $24.22 billion, respectively.
TSLA’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Value and a D for Growth, Momentum, and Stability. Within the Auto & Vehicle Manufacturers industry, TSLA is ranked #42 out of 52 stocks. To see TSLA’s rating for Sentiment and Quality click here.
The Case for NIO Inc. Stock
Headquartered in Shanghai, China, NIO Inc. (NIO) designs, develops, manufactures, and sells smart electric vehicles in China. It offers five- and six-seater electric SUVs, as well as smart electric sedans. The company also offers power solutions, including Power Home, Power Swap, Power Charger, and Destination Charger; Power Mobile, Power Map, and One Click for Power valet service.
NIO’s stock has declined 54.6% over the past nine months to close the last trading session at $4.83.
NIO’s Tang Book Value declined at a CAGR of 2.1% over the past three years.
In terms of forward Price/Sales, NIO is trading at 1.10x, 27.2% higher than the industry average of 0.87x. Similarly, its forward Price/Book is trading at 5.03x, 108.5% higher than the 2.41x industry average.
NIO’s 0.52x trailing-12-month asset turnover ratio is 47.6% lower than the 0.99x industry average. Its trailing-12-month gross profit margin of 5.49% is 85.1% lower than the industry average of 36.80%. Also, its trailing-12-month EBIT margin of negative 40.73% is compared with the industry average of 7.73%.
NIO’s total revenues for the fourth quarter ended December 31, 2023, stood at RMB17.10 billion ($2.36 billion) while its adjusted loss from operations widened marginally year-over-year to RMB6.06 billion ($585.31 million).
In addition, adjusted net loss attributable to ordinary shareholders of NIO narrowed 2.1% year-over-year to RMB4.95 billion ($545.27 million). Its adjusted net loss per share attributable to ordinary shareholders narrowed 8.5% year-over-year to RMB2.81.
For the quarter ended March 31, 2024, NIO’s EPS is expected to remain negative. Its revenue for the same quarter is expected to decrease 3.7% year-over-year to $1.44 billion. It missed the consensus EPS estimates in each of the trailing four quarters.
NIO’s POWR Ratings reflect its grim prospects. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Quality and a D for Momentum, Stability, and Sentiment. Within the same industry, it is ranked #45. In addition to what we stated above, we have also rated NIO for Growth and Value. Get all the NIO ratings here.
TSLA vs. NIO: Which EV Stock Offers Long-Term Profitability?
Despite challenges faced by EV makers this year, the industry anticipates steady growth due to rising consumer demand, government support, and environmental concerns. However, it's wise to avoid TSLA and NIO due to their weak financials, low profitability, high valuation, and weak momentum in the EV sector.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TSLA shares were trading at $179.24 per share on Monday morning, up $5.50 (+3.17%). Year-to-date, TSLA has declined -27.87%, versus a 11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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