On this piece, I evaluated two EV stocks, NIO (NYSE:NIO) and BYD (OTC:BYDDY), using TipRanks’ comparison tool to see which stock is the upper buy. A more in-depth look suggests a bearish view for NIO and a bullish view for BYD.
China-based NIO designs, manufactures, and sells electric vehicles in China and Hong Kong, the U.S., the U.K., and Germany. Meanwhile, BYD, also based in China, manufactures and sells EVs, rechargeable batteries, and select other electronics, including components for mobile devices.
Shares of NIO have plummeted 33% year-to-date, bringing their 12-month return to -41%. Meanwhile, BYD stock is down 14.8% year-to-date, and shares are down 22.7% in the course of the last 12 months.
Those steep year-to-date declines are consistent with the remaining of the EV industry in consequence of concerns about weaker-than-expected demand for electric vehicles and the continued price war. For this reason, even Tesla (NASDAQ:TSLA) is off 26% year-to-date, although the sector-wide drawdown is likely to be offering up some buy-the-dip opportunities.
NIO won’t be profitable, so we’ll compare its price-to-sales (P/S) ratio to that of BYD to gauge their valuations against each other. For a separate comparable, we’ll use Tesla in its place of using the broader auto market, which is skewed in consequence of maximum differences throughout the valuations of legacy automakers versus EV makers. Tesla is currently trading at a price-to-earnings (P/E) ratio of 42.7 and a P/S of 6.8.
NIO (NYSE:NIO)
At a P/S of 1.4, the cash-burning NIO is trading at a greater valuation than the profitable BYD. With no sign that profitability is in sight and even no plan for achieving it anytime soon, a bearish view looks appropriate for NIO, as there are numerous higher EV plays now with the sector’s recent pullback.
On the one hand, NIO grew its vehicle deliveries by 18.2% year-over-year in January and exceeded its guidance for fourth-quarter deliveries. Nevertheless, alternatively, a cursory comparison of other EV makers reveals how much faster most of them are growing as compared with NIO. For example, Li Auto (NASDAQ:LI) grew its vehicle deliveries by 105.8% year-over-year in January, while XPeng (NYSE:XPEV) saw its EV deliveries jump 58%.
Then there’s the problem of profitability. Morningstar (NASDAQ:MORN) analyst Vincent Sun said in September that NIO could change into profitable in 2026, but the company hasn’t offered any official plan to attain profitability. A key issue for the automaker is its margins, which might be being pressured by the continued EV price war.
NIO expects its vehicle margins to attain roughly 15% by the fourth quarter, but its margin stood at 11% throughout the third quarter, down from 16.4% throughout the third quarter of 2022. Furthermore, NIO’s net income margin has remained throughout the -30% to -40% range for the last 4 years with no signs of improvement.
Its net income margin stood at -34.5% in 2020, improved to -29.3% in 2021, fell barely to -29.6% in 2022, and slipped back to -39.2% for the last 12 months, which suggests profitability is likely to be far off. The undeniable undeniable fact that NIO holds only a 2.1% sliver of the Chinese new-energy-vehicle (NEV) market adds further concern that it is likely to be a protracted road ahead for the company — if it manages to survive the least bit.
The one unique thing about NIO is its battery-swapping technology, nevertheless it’s too early to say whether it should end in success for all the corporate.
What Is the Price Goal for NIO Stock?
NIO has a Moderate Buy consensus rating based on six Buys, 4 Holds, and nil Sell rankings assigned in the course of the last three months. At $10.55, the average NIO stock price goal implies upside potential of 85.1%.
BYD (OTC:BYDDY)
At a P/E of 34.8 and a P/S of 0.9, BYD is trading at a steep discount to Tesla — even though it unseated Elon Musk’s wildly successful EV maker since the world’s largest seller of electrical vehicles by delivery count. Thus, a bullish view seems appropriate for BYD, especially considering that the company is undervalued without even considering the non-EV parts of its business.
In 2023, BYD saw its retail sales of new-energy vehicles in China jump 50% year-over-year to 2.7 million units, giving it a 35% share of the Chinese NEV market. Meanwhile, Tesla holds only a 7.8% share of the Chinese market, although its vehicle sales in China grew a splendidly respectable 37.4% year-over-year to greater than 600,000 units.
BYD also has its sights set on international markets, since it delivered a record 36,174 vehicles outside China in January. In truth, all of those sales trends are positive for BYD, even when the stock takes a breather temporarily.
One last item to note about BYD is that this company has been around for a couple of years, having evolved into an EV company that also makes other electronics. As such, BYD has enjoyed some stellar long-term gains in its stock price, which is up 284% in the course of the last five years and 358% in the course of the last 10, making it a horny buy-and-hold position for the long term.
What Is the Price Goal for BYDDY Stock?
BYD has a Moderate Buy consensus rating based on two Buys and no Hold or Sell rankings assigned in the course of the last three months. At $35.50, the average BYD stock price goal implies downside potential of 24.4%.
Conclusion: Bearish on NIO, Bullish on BYDDY
It’s no secret that investors are nervous with reference to the state of the EV market. High rates of interest hit EV sales hard, nevertheless it’s starting to seem like rates could start coming down in some unspecified time in the longer term this 12 months. Furthermore, any dependence on near-term sales trends for EVs is solely short-sighted. Although the transition may take longer than previously expected, the recent pullback throughout the stock prices of some EV makers presents a horny buy-the-dip opportunity.
Nevertheless, when comparing BYD and NIO, it’s clear that BYD is a Chinese juggernaut that’s too low-cost to disregard, while NIO looks like a cash-burning, ultra-risky speculative play on battery-swapping technology. If NIO even survives, it is likely to be quite some time before we start to see signs of success peering across the corner.