For investors that are bullish on the electric vehicle (EV) space, there are multiple stocks from which to choose that have the potential to deliver exponential gains over the long term. Tesla (TSLA) remains the market leader in the EV segment. However, this disruptive industry is attracting capital from retail and institutional investors because it is expanding rapidly. This is an indication that EV sector is heating up, which will increase competition for Tesla.
According to a report from BloombergNEF, global EV sales are forecast to rise from 1.7 million units in 2020 to 26 million units in 2030 and to 54 million units by the end of 2040.
So, we think it makes sense to look for companies that are gaining market share among EV players and can grow their top lines at a fast clip. Here, we compare two other large-cap EV stocks, NIO (NIO) and Arrival (ARVL), that we think should be considered by growth investors right now.
Click here to checkout our Electric Vehicle Industry Report for 2021
NIO stock is down 45% from record highs
NIO has taken investors on a wild ride since the start of 2020. In the last year, NIO stock returned a whopping 1,110% to investors. This means a $1,000 investment in NIO at the start of 2020 would have been worth $12,000 at the close of 2020. However, the stock has underperformed the markets this year, having declined 30% year to date. NIO stock is now trading 45% below its all-time high, providing growth investors an opportunity to now buy a quality company at a lower multiple. In the first quarter of 2021, NIO delivered 20,060 vehicles, representing a 423% increase year over year. The company’s deliveries more than doubled in April also, and it has now shipped more than 100,000 vehicles since inception. Its delivery figures for April would have been higher had NIO and its peers not been impacted by a global semiconductor chip shortage.
In terms of valuation, NIO has a market cap of $56.38 billion. Wall Street expects the company to increase sales by 111% to $5.38 billion in 2021 and by 59.9% to $8.6 billion in 2022. While still unprofitable on an adjusted basis, NIO’s loss per share is expected to narrow from $0.73 in 2020 to $0.09 in 2022. This indicates that NIO stock is trading at a 10.5x forward price-to-earnings multiple, which is not too steep considering its estimated growth rates.
Analysts have a $50, 12-month average target price for NIO, which is 47% above its current trading price.
Arrival is valued at a market cap of $11.6 billion
Arrival designs , researches, develops, assembles, and manufactures robotics and EVs. The company offers trucks, buses, and vans, as well as other commercial EVs and serves markets in the U.S., the U.K., Germany, and Russia.
Arrival was listed on the NASDAQ in March 2021 with an offering of shares priced at $22.80 per share that raised $600 million in gross proceeds. Its stock is currently trading at $19.11, which is 16% below its listing price. The company is backed by a slew of investors, that include Hyundai, Kia Motors, and UPS. In fact, according to Arrival, UPS (UPS) has ordered 10,000 vehicle units, with the option of another 10,000 units in the future. These orders are worth approximately $1.2 billion.
Earlier this month, Arrival disclosed its partnership with Uber in which the two companies will create an affordable ride-hailing EV. Production for the Arrival car will begin in the second half of 2023.
Arrival has forecast its revenue at $1 billion in 2022 and expects the top-line to hit $5 billion in 2023. It's valued at a market cap of $11.6 billion, which means the stock’s forward price to 2022 sales multiple is 11.6x.
The bottom-line
While NIO is an established player in China, Arrival is just getting started and is likely to be a high-risk/high-return investment compared to the former. China is also the world’s largest EV market currently and provides an enticing opportunity for long-term investors given its growing GDP rates and the increase in purchasing power of the country’s middle-class. Both stocks could be lucrative investments ultimately, but NIO may be the slightly more attractive option given the company’s leadership position in China.
Click here to checkout our Electric Vehicle Industry Report for 2021
NIO shares rose $0.39 (+1.14%) in premarket trading Friday. Year-to-date, NIO has declined -29.57%, versus a 11.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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