NIO stock is having another great day but Li Auto shares are up in double digits on Monday.
NIO is one of China’s largest domestic EV companies. The company is listed on the NYSE. The stock was initially very volatile as the company ran into liquidity issues after burning about $6 billion. NIO then received about $1 billion from government-backed institutional investors. The company has been one of the NYSE’s best performers with 650% YTD returns. It focuses on the luxury all-electric segment.
Li Auto is a Chinese EV company founded in 2015. In August, Li Auto listed itself on the NASDAQ exchange and raised a little over $1 billion dollars. The company has done a very stellar job in scaling production and deliveries as it has delivered over 20000 SUV’s since manufacturing commenced in 2019.
NIO Business Model
NIO’s business model has mirrored that of Tesla. The company entered the market with the ultra-high-end NIO EP9, and then used the proceeds and some raised funds to develop more mass-market models.
However, unlike Tesla, NIO has not set up its own manufacturing and battery supply chain. They believe that an asset-light business model is necessary to compete as a new company. The company has partnered with JAGC (Anhui Jianghuai Automobile Group Corp), a large Chinese auto player, for manufacturing. The company’s range starts at $50000 and is a major rival to Tesla in China. The company delivered 21000 vehicles in 2019 and is expected to top 40000 deliveries this year.
Li Auto is based on a very different business strategy compared to NIO, both in terms of product and production. While NIO has outsourced production to a major auto company, Li Auto is completely vertically integrated, doing design and production in-house. Also, Li Auto produces hybrid-assisted EVs compared to NIO’s all-electric offerings. The company’s flagship product, Li-One has a hybrid-gasoline battery charging system that uses a small combustion motor to charge batteries on the move and on-demand. The company claims that this system is both cheaper and greatly addresses big EV issues such as charge time and range anxiety. With an average price of $50000, it is a direct competitor to NIO’s offerings. The company’s Changzhou plant can is equipped to produce 100000 units a year. Li Auto is also in the process of expanding its product portfolio into cheaper offerings.
Li Auto Financial Performance
In the first half of 2020, NIO recorded revenues of over $730 million dollars and a loss of $400 million. Analysts expect the company to record revenues of $630 million and a loss of $180 million in Q3. NIO has a market cap of about $38 billion, implying a revenue multiple of about 15x.
Li Auto is having an extremely strong year. In the first three quarters of 2020, the company has delivered a record of 18160 cars, with 8000 of those being in Q3. Analysts expect revenues of $430 million dollars for the quarter. With a market capitalization of $15 billion, Li Auto is trading at about 12x revenues, making it much cheaper than NIO and a reasonable bet.
Though both companies are carving out a space for themselves in China’s burgeoning EV market, Li Auto is definitely the better investment given its cheaper valuation and accelerating growth for those looking for higher, especially since NIO is already up nearly 7x this year.