I am moderately bullish on both Nio (NIO) and XPeng (XPEV), two relatively new Chinese electric vehicle (EV) companies. However, of the two, XPeng appears to offer the best return potential as its future growth rates are likely to exceed Nio’s. Based on my analysis, both investments are undervalued, but they are likely to face profitability challenges in the coming years. That said, given the expected profitability for both companies over the medium term, I’m giving a Moderate Buy rating to each company.
Using TipRanks’ stock comparison tool, let’s compare these two Chinese EV manufacturers.
I’m moderately bullish on NIO stock after its recent Q3 2024 results. The company delivered 61,855 vehicles, setting a new quarterly record. In addition, the company expected 72,000 to 75,000 units for the fourth quarter of 2024. Nio’s mass-market ONVO L60 SUV, a key growth driver, has been on the rise since the end of the third quarter, with the company targeting 20,000 units produced by March 2025 per month. The company’s third-quarter revenue fell 2.1% year-over-year due to pricing pressure.
In the earnings call, management highlighted long-term growth in Europe, with the global expansion strategy relying heavily on the ONVO and Firefly models (a compact boutique car) to meet mass market demand. Compared to XPeng, Nio is less aggressive in expanding the overseas market, but prioritizes brand positioning and infrastructure readiness.
In many ways, XPeng focuses on efficiency, while Nio emphasizes quality. For example, XPeng’s P7+ AI Hawkeye Visual Advanced Driver Assistance System does not rely on LiDAR or HD maps, which helps reduce costs. Nio, on the other hand, uses an extensive range of sensors, including LiDAR and HD maps. Similarly, in the US, Tesla (TSLA) is adopting the efficiency-focused model, while Waymo is taking a more comprehensive approach, similar to Nio’s strategy.
Meanwhile, Nio’s third-quarter revenue grew 7% quarter-on-quarter. Although net loss remained high at RMB 5.1 billion, the company maintained a strong cash position of RMB 42.2 billion. Management aims to break even in 2026. Compared to XPeng, Nio will likely take longer to become profitable. While its revenue base is larger, Nio continues to invest heavily in building its long-term market position, delaying profitability in favor of a stronger future.
One of the main reasons I’m bullish on Nio is its price-to-sales ratio (P/S) of just 1x, significantly lower than historical highs (P/S of 34x in 2020). If the company continues to move toward profitability and maintains strong year-on-year revenue growth of 25% for fiscal 2024 and 40% for fiscal 2025, this could become a high-return investment that will boost its potential profitability in fiscal year 2026 or fiscal year 2027.