Let’s take another look at Chinese electric vehicle manufacturer NIO ($NIO) and compare it to Tesla ($TSLA).
Large Chinese cities are implementing license plate policies that will increase driving restrictions on non-local vehicles, causing a rush to purchase electric cars to avoid the driving time restrictions and get a free “local” license plate. NIO, XPeng, BYD, and Tesla are seeing demand surges recently, and this trend is expected to continue.
NIO is a clear winner of the electrification of China’s vehicle market. NIO outperformed expectations by selling a record 5,055 units in October (+100%) as demand overtakes supply resulting in up to 6-week customer wait times. The stock has doubled in the last two months amid analyst upgrades and solid sales numbers.
NIO’s order book remains strong and will get a boost from the 100kWh battery pack option available later this month. NIO is also developing a 150kWh battery pack (560 miles of range) expected to launch in 2022. NIO is also looking to sell about 7,000 units in Europe within two years, with initial markets likely in Denmark and Norway.
At around $38 per share, $NIO trades at 7.5x 2022 estimated sales, which is on-par with $TSLA trading at 7.2x 2022 sales. But you can’t justify owning either using any profitability metric – $NIO has minimal gross profit, and $TSLA trades at a crazy 32x 2022 gross profit.
But my valuation model shows that $TSLA could be worth $475+ today if you believe that revenue by 8x or more over the next decade (implying they grow as big as Toyota and almost double GM and Ford). So I’d categorize both $NIO and $TSLA relatively “fairly valued,” but good speculative bets for those that passionately believe in the electric vehicle boom and believe these companies will grow 8-10x over the next decade.