NIO vs. Workhorse: Which Electric Vehicle Stock is Better

Though electric vehicle (EV) stocks are still riding high, they’ve significantly pulled back from all-time highs.  This is evident by looking at the performance of the KraneShares Electric Vehicles & Future Mobility Index ETF (KARS), which is down by 10% from it’s all-time high, but still up 82% in the past year.

The growth trajectory for the EV industry is impressive.  Deloitte forecast EV sales growing from 2.5 million in 2020 to 11.2 million in 2025, then reaching 31.1 million by 2030.

However, many EV newcomers are still struggling to bring their vehicles to market and to generate profits. In addition, competition is intensifying between well-established automakers and new start-ups

Today I’m going to analyze NIO Inc. (NIO) and Workhorse Group Inc (WKHS). NIO is an established EV manufacturer in China and WKHS is an up and coming EV manufacturer in the US.  Let’s see which is the better stock to buy now.

NIO Inc. (NIO):

NIO is a Chinese automaker that designs, builds, and sells electric and autonomous vehicles and parts. The company also focuses on providing vehicle charging solutions, enabling its customers to recharge their vehicles by home charging, fast charging, mobile charging, and battery swapping. As of today, the company operates mainly in China but plans to enter the European market by the end of 2021.

After rallying a whopping 1,210% in 2020, NIO shares are trading 6% lower year-to-date. According to NIO’s latest quarterly report, the company delivered 20,060 vehicles in the 1Q2021, representing an increase of 422.7% from the 1Q2020 and an increase of 15.6% compared to 4Q2020.

The company is expected to significantly boost sales in 2021, with net sales reaching $35.2b CNY, more than doubling in value compared to 2020 and jumping by 4.5x compared to pre-Covid levels (2019).

NIO has a strong balance sheet, with a cash position of $30.6b CNY (USD $7.782b) at the end of 2020, the automobile maker has enough capital to expand into new markets and to fuel its growth prospects. Indeed, NIO expects to hit the European market by the end of the year and the company is accelerating its investments in 2021, with Capex expected to double year on year, from $1.1b CNY to $2.6b CNY this year. 

Nevertheless, the company is still losing money at this stage of its development, even if it has managed to stabilize its losses during the pandemic. In 2021, analysts anticipate a net loss of $5.6b CNY, which is still twice as low as the figures posted in 2019 of $11.4b. Investors should, however, keep in mind that most EV makers are not yet breaking even, but NIO is well-positioned to turn in a profit in the next two years, providing a strong support to NIO’s share price. 

In terms of valuation, the company trades at ridiculously high ratios, with a 2021e EV/EBITDA of -222x and a 2021e Price to Book of 16.6x, there seems to be a lot of speculative buying on NIO. Yet, this does not mean that investor’s anticipations will not fulfill in the coming months. 

Workhorse Group Inc. (WKHS): 

WKHS is focusing on providing high-performance electric vehicles and aircraft to the commercial transportation industry to the last-mile delivery sector. The company is an Original Equipment Manufacturer (OEM) of Commercial Class 3-6 medium trucks. WKHS offers a series of electric delivery trucks and provides specifically designed drones for parcel delivery.

Since the start of the year, WKHS shares have dipped 21%. WKHS announced in its latest quarterly report that it produced a total of 38 C-Series vehicles year-to-date and adjusted its 2021 production estimate to 1,000 units. While the guidance seems ambitious, we don’t see how WKHS will be able to reach that target after delivering only 38 vans and acknowledging that it has been hit by supply chain constraints in 1Q2021.

Looking at WKHS financials, analysts anticipate net sales to boost vigorously in this year, jumping more than 50x year-on-year to $72.9m, after its EVs start entering the market. On the other side, WKHS’ bottom line is still expected to remain in the red in the next three years and the company’s net income will hit a negative $194m this year, the highest since its inception. Going forward, if the company delivers the EVs already in its order book, net income should decrease steeply in the next two years, enabling the company to generate a profit by the end of 2023.

WKHS valuation is also stretched. The company is currently trading at a 2021e EV/EBITDA of -24.7x and at a Price to Book of 10.1x. These multiples are slightly more attractive than those of NIO. Yet, with traditional automakers entering the EV market, competition will intensify, and given WKHS’s current delivery pace, the company is lagging most of its competitors.

Take away

Both NIO and WKHS are expensive.  However, if you were going to pick one of these stocks to invest in, it’s my opinion that even if WKHS looks slightly more attractive in terms of valuation metrics, NIO is a better play in the future.  That’s due to the strong implementation of EVs in the Chinese market, a healthy balance sheet, and a strong execution on deliveries.

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