Nio or XPeng: Bank of America picks the superior EV stocks to buy

The automotive industry is in the midst of a fundamental change as a combination of technological advances and sociopolitical pressures drive a shift toward electric vehicles (EVs). Just ten years ago, such a change would have been unthinkable; The battery and electric motor technology, along with the component materials, were simply not a match for the competition.

However, the automotive landscape has changed. New body materials, better electric motors, more powerful and longer lasting batteries – all this has made electric cars more competitive compared to petrol cars. And nowhere is this more evident than in China. The Asian giant is already the world’s largest auto market and its government has taken a leading role in promoting the EV transition.

Against the backdrop, Bank of America analyst Ming-Hsun Lee, an expert on Chinese EV stocks, offers valuable insights into the sector’s dynamics. Lee looked ‘under the hood’ at two leading Chinese EV companies, Nio (NYSE:NIO) and XPeng (NYSE:XPEV), and explained the details of their current status and likely future path. The result is a clear conclusion on which investors can buy the best EV stock today. Let’s take a closer look at that.

Nio, Inc. (NIO)

We’ll start with Nio, one of the leaders in China’s EV sector. The company was founded in 2014 and began regular production of the first two vehicle models in 2019. Today Nio has 9 cars in production and on the market, including 2 sedans and 5 SUVs, both in full and mid-range versions. size classes.

Nio prides itself on the styling and long battery range of its vehicles, important features for an automaker to promote, but the company also offers a feature that sets it apart from the competition. Nio has made battery refilling easy with its Battery-as-a-Service model. Building on its software subscription model, Nio makes switching and replacing batteries easy for subscribers. The company operates a network of gas stations and BaaS subscribers can drop by, replace an empty battery with a full one and drive away. It is billed as a convenient alternative to extended stays at the charging stations.

In addition to the battery service, Nio is also experimenting with assisted and intelligent driving, with the aim of creating an Autonomous Driving-as-a-Service program. Nio’s commitment to combining the latest technology with the driving experience is how the company aims to differentiate itself from its competitors.

At the beginning of this month, Nio announced its delivery figures for February. The total was 8,132 vehicles delivered in the month; this number was divided between 4,765 SUV models and 3,367 sedans. As of February 29, 2024, Nio has delivered a total of 467,781 electric vehicles to its customers. This is an addition of 18,187 vehicles, or 4%, since December 31, 2023.

On the earnings front, Nio’s Q4 23 report, the last published, showed total revenue of $2.4 billion, up 6.5% year over year and $70 million higher than forecast. The company is currently operating at a net loss, which was 39 cents per share in the fourth quarter based on non-GAAP measures. This loss was 7 cents per share deeper than expected. As of December 31, 2023, the company had $8.1 billion in cash and other liquid assets.

Although Nio has a solid position in the Chinese EV market for the time being, analyst Lee takes a cautious stance on the stock. He writes: “We have a neutral [rating] on NIO, as (1) NIO has no new models in Q1 24 and therefore volume sales growth could be lower than that of the industry; (2) NIO may need to provide more price discounts on its existing models than cost reduction, and it may spend more on marketing campaigns and sales networks for new brands, leading to lower margins. On the upside, we are still bullish on NIO due to (1) better prospects for volume sales in the fourth quarter of 2025 and (2) an improvement in its financial position.”

This Neutral (Hold) rating is accompanied by a price target of US$6.50, suggesting that Bank of America’s sector expert sees a potential upside of 27% for the stock over the next twelve months. (To view Lee’s track record, click here)

Overall, NIO stock gets a Moderate Buy from the analyst consensus, based on 15 recent ratings, including 7 Buys, 7 Holds, and 1 Sell. NIO shares are priced at $5.05 on Wall Street, and the average price target of $7.09 is slightly more bullish than the BofA view, implying a one-year upside of 40.5%. (To see Nio stock forecast)

XPeng, Inc. (XPEV)

Next up is XPeng, another EV manufacturer serving the Chinese car market. XPeng is based in the southern city of Guangzhou and has 5 EV models on the market; The company’s first model, the G3 electric SUV, went into production at the end of 2019 and was followed by the P7 sedan, which was delivered in 2020. The company’s latest model, the X9 7-seater, was delivered for the first time last January. The customer-facing side of the business includes a network of 500 stores in 181 cities across China.

XPeng markets its vehicles to middle-class consumers, a growing demographic in China. The cars are designed with tech-savvy drivers in mind and feature both advanced driver assistance technology and high-end intelligent in-car operating systems. These are integrated with advanced powertrains and electrical/electronic architecture for optimal performance.

Vehicle owners have access to XPeng’s network of self-operated charging stations. This network includes 902 autonomous supercharging stations, along with 206 destination charging stations, for a total of 1,108 stations as of December 31, 2023.

Last February, the last month for which figures are available, XPeng delivered a total of 4,545 of its Smart EVs. 1,448 units of the new X9 were delivered, for a total of almost 4,000 deliveries in the first two months after the vehicle’s launch. This gives the new model a strong position in the MPV segment and in the three-row BEV segment. The company expects March to see an acceleration in X9 shipments now that the Chinese New Year holidays are over.

Earlier this month, XPeng published its data for the fourth quarter and full year 2023. The company’s total vehicle deliveries stood at 60,158 as of December 31 last year, an increase of 170.9% over the twelve-month period. The company posted Q4 2023 revenue of $1.84 billion, up 153.9% from Q4 2022. Ultimately, XPeng posted a net loss of 28 cents per share, in U.S. currency, according to non-GAAP measures. This was better than expected, beating estimates by 14 cents per share.

For Bank of America’s Lee, all this adds up to a company worth watching. He says about the share: “We have a buy rating on XPeng. We like the (1) early mover advantage in the development of advanced driver assistance systems (ADAS), which could be converted into service revenues as evidenced by the partnership with Volkswagen, (2) the pipeline of new models in 2024- 2025 to improve volume sales growth, (3) improving product mix and cost control to increase margin in 2024-2025.”

Translating this view into quantifiable terms, Lees’ Buy rating comes with a $13.50 price target that suggests upside of 42% over one year.

Overall, XPEV stock gets a Moderate Buy from the analyst consensus, a rating based on eight recent recommendations. These include 4 buys, 3 holds and 1 sell. The shares are trading for $9.42 and their average price target of $12.75 implies a 35% one-year upside potential. (To see XPeng’s stock forecast)

And now analyst Ming’s choice is clear: If you’re looking for exposure to China’s electric car market, buy XPeng as the superior EV stock.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

Leave a Reply

Your email address will not be published. Required fields are marked *