The race for global EV supremacy is on, and growth investors have quite the range of options to choose from in the EV sector.
The adoption of EVs is set to continue to accelerate over time. The EV sector is expected to grow at a CAGR of 29% from 2021 to 2026. As such, growth investors have flocked to both Tesla (TSLA) and Nio (NIO) as the beneficiaries of this incredible growth catalyst.
Now, the question most investors have on their minds is: which company offers the best growth prospects? The answer really isn’t obvious. However, when looking at the core operations of both companies, it becomes clear that one indeed seems better than the other. (See Nio stock analysis on TipRanks)
China vs. USA
In some sense, the discussion of whether Tesla or Nio is a better investment at these levels comes down to an analysis of the company’s core markets.
Tesla operates in China, and Nio hasn’t really cracked the international markets thus far. In this regard, the choice may seem to be simple – Tesla is the frontrunner for global domination in the EV space.
However, recent events have cast some doubt on this thesis. U.S.-China relations have deteriorated rapidly during the Biden Presidency. Hopes of strengthening Sino-U.S. relations have been thwarted by what appears to be jockeying for global superpower status. Tesla has been caught in the crossfire in this political war of words.
China has recently clamped down on Tesla in a big way. A ban on Tesla ownership for government officials and employees of government-sponsored companies was recently expanded. A few days ago, the Chinese government announced that Tesla vehicles would be banned from government compounds and agencies. This is an escalation of a move that many believe could lead to Tesla’s market share becoming regulated out of China.
Accordingly, as the poster child for China’s booming EV sector, Nio stands to benefit. China currently holds approximately 41% of the global EV market share, compared to the U.S.'s market share of 2.4%. China’s market share number is actually expected to increase over the medium-term, given the rapid rate of EV growth in China (50% expected growth in 2021) relative to the U.S. and the rest of the world.
In this aspect, Nio looks highly attractive from a growth standpoint. Tesla CEO Elon Musk has previously commented that China will be the company’s biggest market. Now, these geopolitical concerns have poured a bucket of cold water on that idea. If Tesla is pushed out of China, Nio stands to reap the growth EV companies are jockeying for right now.
Tesla and Nio: Not Operating in a Vacuum
Both EV players have great business models, and both have shown market leadership in their respective core markets.
One can argue about which market is better. However, there’s also the pesky reality that competition in the EV space is likely to continue to heat up as traditional ICE vehicle manufacturers join the EV party.
The effect of that phenomenon was seen recently, when Ford (F) unveiled the F-150 Lightning. That entry into the EV market resulted in double-digit declines in other heavy-duty EV makers. Clearly, the idea that market share leads are impenetrable is quite asinine right now.
Both Tesla and Nio have steep competition in their core markets. Additionally, European players are stepping up with incredible offerings aimed at both American and Chinese buyers.
Indeed, modeling out both companies isn’t likely to be easy in the coming years. Competition could provide rapidly-changing inputs for both stocks in investors’ models.
What Analysts Are Saying About NIO Stock
According to TipRanks’ analyst rating consensus, NIO stock comes in as a Moderate Buy. Out of 10 analyst ratings, there are 7 Buy recommendations and 3 Hold recommendations.
As for price targets, the average analyst price target is $60.71. Analyst price targets range from a low of $38.80 per share to a high of $81.00 per share.
Bottom Line
If both Tesla and Nio become chess pieces used as pawns in a geopolitical regulatory war, there will certainly reason to be wary of owning Tesla right now. In contrast, Nio’s strong position in the hyper-growth Chinese market makes this stock extremely attractive today.
Both stocks are valued in the nosebleeds when it comes to valuation. Accordingly, investors will likely make their investment decisions on the basis of forward-looking growth assumptions. On this basis, Nio looks like a much better option right now.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
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.
Tesla (TSLA) has responded to growing scrutiny over the way it handles data generated by its cars in China. Reuters reports that the electric vehicle giant has established a site dedicated to storing EV cars' data in the country.
Tesla will expand the data center network to address its growing needs amid expanding car sales. China is the world's biggest EV market and the second largest for Tesla. Tesla is setting up a platform that will allow car owners to access data generated by their cars. (See Tesla stock analysis on TipRanks)
The new data center comes on the heels of China drafting new rules designed to ensure the security of data generated by connected cars. The data regulation has been fueled by growing concerns about privacy and national security posed by some EVs.
In fact, some Chinese governmental offices have banned their staffers from parking their Tesla cars within the premises. Given that the vehicles come with mounted cameras, there are growing concerns that they pose significant security risks, as they could be used to spy on the premises.
Wells Fargo analyst Colin Langan has warned it is highly unlikely for Tesla stock to bounce back after a recent steep pullback. According to the analyst, the stock is where it should be after a 30% plus pullback from its 52-week high.
“We expect deliveries to continue to surprise to the upside near term, which gives support to [bulls],” wrote the analyst in a research note to investors. According to Langan, Tesla can build 1.7 million Model 3/Y by 2022. However, stiff competition in the EV space could pose a significant demand problem. The analyst has also warned about the potential risk of rising costs expected to eat into profit margins.
Langan has reiterated a Hold rating on Tesla with a $590 price target, implying 2.71% downside potential to current levels.
Consensus among analysts on Wall Street is a Hold based on 10 Buy, 8 Hold, and 7 Sell ratings. The average analyst price target of $645.88 implies 6.81% upside potential to current levels.
TSLA scores 8 out of 10 on TipRanks’ Smart Score rating system, implying it is likely to outperform the overall market.
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In the classic 1989 movie Field of Dreams, Kevin Costner’s character keeps hearing a mysterious voice telling him, “if you build it, they will come,” prompting him to inexplicably build a baseball diamond on his Iowa corn farm.
It’s hard to tell if Elon Musk has heard voices telling him new customers will come in droves to buy Tesla (TSLA) models if he builds new plants, but their construction is nevertheless a concern raised by Wells Fargo’s Colin Langan.
“We estimate TSLA will double its global capacity to ~2m unit as new plants come online in ~2022. This compares to deliveries of ~500k in 2020. The new Cybertruck and Model Y launch in Europe should add demand; however all-in Model 3/Y sales would need to be ~1.7m to fully use this capacity. This would be higher than the best luxury sedan & SUV sales combined (~0.9m).”
Considering that over the last year, all of Tesla’s market share gains were driven by China, Langan thinks the recent protest at the Shanghai Auto Show and subsequent negative press is also a concern.
And it’s not as if Tesla is the only company intent on riding the EV boom. The number of available EV models is anticipated to double in the US this year, whilst global EV competition is “accelerating.”
That said, it’s not all doom and gloom, and Langan does throw some meat to the Tesla bulls, expecting deliveries will “surprise to the upside near term.”
However, there are other issues Tesla must contend with. Commodity prices have been on the rise in 2021, and EV batteries have not been spared. For example, the price of lithium is up by more than 59%, cobalt over 50%, and nickel 44%. And according to experts at Wells Fargo’s mobility conference, estimated battery costs have risen to $130-150/ kWh from the prior $105/kWh.
Luckily for Tesla, the near-term impact can be blunted to the “lower end of the range,” as for these materials, the company generally “locks in” longer term contracts.
Still, there will most likely be an extra cost of $1,375 per vehicle from the rise, which would eat into margins, once the contracts are renewed.
That is not all that concerns Langan.
There’s also growing regulatory risk concerning Tesla’s “Autopilot” which only increased since an NTSB letter “raised concerns on the need to restrict the operational area of Level 2 autonomous systems and the need to add driver monitoring.”
In Europe, the use of these systems has already been limited by the regulators, and Langan thinks that putting limits on this important selling feature would be a negative for current owners, and might also “limit planned features in the full-self driving (FSD) roll out.”
To this end, Langan initiated coverage of Tesla with an Equal Weight (i.e., Hold) rating and $590 price target, suggesting the shares will stay range-bound for the foreseeable future. (To watch Langan’s track record, click here)
Looking at the consensus breakdown, the rest of the Street supports Langan’s thesis. Based on 10 Buys, 8 Holds and 7 Sells, the stock has a Hold consensus rating. Meanwhile, the $645.88 average price target implies upside of ~7% on the one-year timeframe. (See TSLA stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.