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I am moderately bullish on both Nio (NIO) and XPeng (XPEV), two relatively new Chinese electric vehicle (EV) companies. However, of the two, XPeng appears to offer the best return potential, as its future growth rates are likely to surpass Nio’s. Both investments are undervalued based on my analysis, but each is likely to face challenges with profitability over the next few years. That said, with profitability expected for both companies in the medium term, I am assigning a Moderate Buy rating to each.
Using TipRanks’ Stock Comparison Tool, let us compare these two Chinese EV makers.
I’m moderately bullish on NIO stock following its recent Q3 2024 results. The company delivered 61,855 vehicles, achieving a new quarterly record. Additionally, it guided for 72,000 to 75,000 units for Q4 2024. Nio’s ONVO L60 mass-market SUV, a key growth driver, has been ramping up since late Q3, with the company targeting 20,000 units produced per month by March 2025. However, the company’s Q3 revenue did fall by 2.1% year-over-year due to pricing pressure.
In the earnings call, management emphasized long-term growth in Europe, with its global expansion strategy relying heavily on the ONVO and Firefly (a boutique compact car) models to capture mass-market demand. Compared to XPeng, Nio is less aggressive in overseas market expansion but prioritizes brand positioning and infrastructure readiness.
In many respects, XPeng focuses on efficiency, while Nio emphasizes quality. For instance, XPeng’s P7+ AI Hawkeye Visual Advanced Driver Assistance System does not rely on LiDAR or HD maps, which helps reduce costs. In contrast, Nio employs a comprehensive array of sensors, including LiDAR and HD maps. Similarly, in the U.S., Tesla (TSLA) adopts the efficiency-focused model, while Waymo follows a more comprehensive approach, akin to Nio’s strategy.
Meanwhile, Nio’s Q3 revenue grew 7% quarter-over-quarter. While its net loss remained high at RMB 5.1 billion, the company maintained a strong cash position of RMB 42.2 billion. Management is targeting breakeven by 2026. Compared to XPeng, Nio is likely to take longer to reach profitability. Although its revenue base is larger, Nio continues to invest heavily in building its long-term market position, delaying profitability in favor of a stronger future.
One of the core reasons I’m bullish on Nio is its price-to-sales (P/S) ratio of just 1x, significantly lower than historical highs (P/S of 34x in 2020). If the company continues moving toward profitability and sustains strong year-over-year revenue growth of 25% for Fiscal 2024 and 40% for Fiscal 2025, this could become a high-return investment approaching potential profitability in Fiscal 2026 or Fiscal 2027.
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