Nio vs. XPeng: Which is Coasting Toward Upside?

The sale of Electric Vehicles (EVs) in China is booming due to the Chinese government’s push towards electric vehicles. According to a Reuters report from last week, EV sales in July at Chinese automakers like Li Auto (LI) and XPeng (XPEV) more than tripled from the same period a year back.

However, according to a recent Bloomberg report, citing data from China’s Passenger Car Association, Tesla (TSLA), which dominates the Chinese EV market, reported domestic shipments in China in July of just 8,621 units, down by 69% from June.

Using the TipRanks Stock Comparison tool, let us, look at two such Chinese EV manufacturers, NIO and XPeng, and see how Wall Street analysts feel about these stocks.

Nio (NIO)

Nio, a Chinese automaker of premium EVs, announced its second-quarter results yesterday. The delivery of vehicles increased 111.9% year-over-year to 21,896 in Q2. The company posted total revenues of $1.31 billion, a massive jump of 127.2% year-over-year and beating the consensus estimate of $1.28 billion.

The rise in revenues was driven by higher vehicle sales of $1,225.4 million, up 127% year-over-year. NIO had an adjusted diluted net loss of $0.03 per share, narrower than analysts’ estimate of a loss of $0.11 per share.

William Bin Li, Founder, Chairman, and CEO of NIO said, “”While the global supply chain still faces uncertainties, we have been working closely with our partners to improve the overall supply chain production capacity.”

Li added that the company aims to launch three new products next year based on the NIO Technology Platform 2.0, including ET7, a flagship premium smart electric sedan.

In Q3, NIO has projected vehicle deliveries to range between 23,000 and 25,000 vehicles, while total revenues are anticipated to vary from $1,380.4 million to $1,491.7 million.

Mizuho Securities analyst Vijay Rakesh noted that the company’s Q3 guidance for vehicle deliveries was above the consensus estimate of 23,300, in spite of chip shortages. The analyst reiterated a Buy rating and a price target of $65 (47.8% upside) on the stock following the Q2 results.

In May this year, the company renewed its agreement with Jianghuai Automobile Group Co. (JAC) and Jianglai Advanced Manufacturing Technology (Anhui) for the joint manufacturing of the company’s vehicles.

JAC is a major Chinese state-owned automobile manufacturer. From May this year to 2024, it will manufacture different NIO vehicle models. Furthermore, JAC will also increase its production capacity to 240,000 units “to meet the growing demand for NIO vehicles.” (See Nio stock chart on TipRanks)

According to analyst Rakesh, this agreement would result in almost doubling the manufacturing capacity from an earlier 120,000 units, “with SepQ deliveries outpacing its prior target production levels of ~7,500 units/month.”

The analyst added, “We see NIO’s value leadership in the premium EV segment with solid battery technology and ADAS [advanced driving assistant system] roadmaps as drivers of growth.” Moreover, Rakesh said that because the company’s core business is focused on China, other advantages for NIO are “regulatory support and market familiarity.”

That analyst also believes that NIO’s global expansion could become a “meaningful contributor to future growth.”

However, Rakesh also cautioned that NIO could face rising competition from both domestic and foreign automakers, like Tesla, that could result in “increasing pricing pressure.”

The analyst also pointed out the high cost of battery swap station infrastructure costs could pose a risk for the stock and these costs “must decline and standardization realized to achieve higher rates of battery swap station installs.”

Turning to the rest of the Street, consensus is that NIO is a Strong Buy, based on 6 Buys. The average NIO price target of $64.17 implies an approximately 45.9% upside potential from current levels.

XPeng (XPEV)

XPeng is expected to report its Q2 results on August 26. For Q2, XPeng anticipates vehicle deliveries to range between 15,500 to 16,000 vehicles and total revenues to range between RMB3.4 billion and RMB3.5 billion.

However, Deutsche Bank analyst Edison Yu expects revenues of RMB3.79 billion in Q2 and a gross margin of 10.9%, slightly ahead of consensus estimates. The analyst has a Buy rating on the stock but raised the price target from $43 to $50 (18.3% upside) late last month.

The reason for the rise in price target is an increase in the analyst’s forecasts, driven by XPEV’s capital raise and its Hong Kong listing.

Last month, the company joined Hong Kong’s Hang Seng Composite Index. XPeng’s shares began trading on The Stock Exchange of Hong Kong Limited (HKEX) under the stock code, “9868”.

In relation to this listing, the company offered an international offering of 85 million shares priced at $42.52 per American Depository Share (ADS).

In July, XPeng recorded its highest-ever monthly deliveries of smart EVs with deliveries of 8,040 vehicles. This was a huge year-over-year jump of 228%. (See XPeng stock chart on TipRanks)

A majority of these vehicle deliveries, around 75.3%, that is 6,054 vehicles were P7, XPeng’s sports smart sedan, and the remaining deliveries were of G3, its smart compact SUV.

In July, the company expanded its product portfolio with the launch of the G3i and the G3 SUV’s mid-phase facelift version. The company expects deliveries of these new models in September 2021.

Interestingly, Yu is of the opinion that “following the government’s crackdown on DIDI [ride hailing company] and more broadly on large internet platforms, we believe that China EV stocks are emerging as one of the most reliable/ safe secular growth sectors, especially for international investors looking at Chinese investments.”

The analyst also noted that “there is very low concentration of market power in the automotive sector” in China with EV majors NIO, XPEV and Li Auto each holding less than 10% of EV share by year’s end.

Turning to the rest of the Street, consensus is that XPeng is a Strong Buy, based on 7 Buys. The average XPeng price target of $55 implies an approximately 30.2% upside potential from current levels.

Bottom Line

While analysts are bullish about both stocks, based on the upside potential over the next 12 months, NIO seems to be a better Buy.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

Roy Walsh

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