December 11th, 2017

Nio vs. ElectraMeccanica: Which Electric Vehicle Stock is a Better Buy?

The electric vehicle industry’s impressive growth is driving investors to look at the newly emerged companies instead of overvalued industry giants for higher profits. Will start-up ElectraMeccanica Vehicles Corporation’s (SOLO) unique designs be sufficient to take on China’s leading EV manufacturer NIO (NIO)? Read more to find out.

China is leading in the global Electric Vehicles (EV) space, as it is the biggest manufacturer and market for EVs. The country’s goal to become carbon neutral by 2060 is facilitating the growth of its EV industry further, with government incentives in the form of subsidies and tax credits. NIO Ltd. (NIO) is gearing up to provide stiff competition to established market leaders through its international expansion plans, after dominating the domestic market.

ElectraMeccanica Vehicles Corporation (SOLO), on the other hand, is currently in the developmental stage and is yet to commercially launch its vehicles in the market. However, SOLO has a distinctive advantage over NIO, based on its unique EV designs. As the name suggests, SOLO manufactures three-wheeled single-seater vehicles, while NIO manufactures traditional EVs. While SOLO’s vehicles are expected to be more cost-effective compared to NIO, as well as more suitable for the urban commute, NIO has the benefit of unrestricted access to China’s lithium deposits, a key component in the production of any kind of EVs.

Both companies have generated significant returns over the past year. While NIO gained 2,519% over this period, SOLO returned 355.3%. In terms of past six-month performance as well, NIO is the clear winner with 1,541.9% gains compared to SOLO’s 723.1% returns. However, SOLO gained 224.2% over the past month, surpassing NIO’s 97.7% gains over this period.

But which stock is a better buy now? Let’s find out.

Latest Developments

SOLO began commercial production of its flagship three-wheeled SOLO EV for single riders in August this year. The company is also planning to launch a utility and fleet version of SOLO EV, which is expected to be available by early 2021.

SOLO selected Arizona and Tennessee as two sites for SOLO EV US assembly facility and engineering technology center. This allows the company direct access to the United States EV markets without any trade barriers such as tariff expenses, ensuring higher returns for shareholders.

On October 29th, SOLO announced the opening of six retail showrooms across the country within November. This adds to the four showrooms already operating in the country. The first batch of SOLO EVs has been presented at the Los Angeles Ride and Drive press event. The vehicles are expected to be available for commercial sale by next year.

NIO recently raised $1.30 billion through an American depository share offering, which is expected to contribute to the research and development of electric car ecosystems and automated technologies as well as developing its global market presence. It also plans to buy back some of its shares from Hefei investor group, which previously bailed out the company with a $1.40 billion cash infusion. The company is currently planning to expand to the European EV market.

NIO is the first company to launch a ‘battery as a service’ (BaaS) subscription model, allowing customers to purchase electric vehicles and battery packs separately. It is planning to launch its EVs in the European market by 2021. NIO aims to penetrate the most important global markets across the world by 2023 - 2024, according to CEO William Li.

Recent Financial Results

SOLO’s revenue increased 50% year-over-year to C$0.30 million in the third quarter ended September 2020. Cash and cash equivalents improved 810.8% over the last two quarters to $101.10 million.

NIO’s total revenues increased 146.4% year-over-year to RMB4.53 billion in the third quarter ended September 2020. Vehicle sales grew 146.1% from the same period last year to RMB 4.27 billion. Gross profit rose significantly over this period to RMB 585.80 billion, compared to a negative year-ago value. NIO delivered 5,055 vehicles in October, up 100.1% from the same period last year.

Past and Expected Financial Performance

SOLO’s revenue increased 28.5% year-over-year, while NIO’s revenue grew 48.2% year-over-year.

NIO’s EPS is expected to grow 56% in the current year, and 48.5% next year. Analysts expect NIO’s revenue to increase 112.7% in the current year, and 104.8% next year.

On the other hand, analysts expect SOLO’s EPS to rise by 18.3% in the current year, and 6.1% next year. The company’s revenue is expected to grow 15.2% in the current year, and 2,498.4% next year.

Profitability

NIO’s trailing 12-month revenue is 3,161.51 times what SOLO generates. NIO is also more profitable with a gross margin of 3.8% compared to SOLO’s 0.4%.

Thus, NIO is a more profitable stock here.

Valuation

In terms of trailing 12-month Price/Sales, SOLO is currently trading at 699.46x, 95.5% more expensive than NIO, which is currently trading at 31.66x. SOLO is also more expensive in terms of trailing 12-month EV/Sales (1019.54x versus 39.26x).

However, NIO’s Price-to-Book ratio of 55.01x is 85% more expensive than SOLO’s 8.23x.

POWR Ratings

NIO is rated “Strong Buy” in our proprietary POWR Ratings system, while SOLO is rated “Neutral”. Here’s how the four components of overall POWR Rating are graded for both these stocks:

SOLO has an “A” for Trade Grade and Industry Rank, and “D” for Buy & Hold Grade and Peer Grade. It is currently ranked #28 in the Auto & Vehicle Manufacturers industry.

NIO has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and “B” for Industry Rank. In the 115-stock China industry, NIO is currently ranked #2.

The Winner

While SOLO’s unique design and features are very impressive, NIO is a seasoned player with an already established manufacturing and clientele base. While SOLO is focused on rolling out the first batch of EVs, NIO is expanding its business operations to different continents. Thus, SOLO has a long way to go to reach NIO’s level. NIO’s quarterly revenues have increased 146.4% year-over-year, while SOLO’s quarterly revenues rose 63.6% over the same period. Thus, NIO is the better pick here.

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NIO shares were trading at $53.93 per share on Friday morning, up $0.24 (+0.45%). Year-to-date, NIO has gained 1,241.54%, versus a 14.71% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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