Analysis of the Key Distruptors in the EV & Automotive Industry

by Sir_Meowstro

I decided I would do a comparable analysis of some major names in the EV industry to make sense of the current hype and growth estimates – and no, I will not be including Chargepoint or Workhorse. Given that the EV sector is still in a growth phase, I decided not to use price multiples and instead focused on performance, liquidity, how the street has treated it, how management has treated it, their supply chain and geographic exposure. Here is what I found.


1-Year CAGR

Given the growth phase most of these companies are going through – and the impact of the coronavirus – a 1 year time frame for their CAGR seemed appropriate. Within CAGR I look at some very important fundamentals – Sales, EBIT (Operating Income), Net Income, and Free Cash Flow. Of the Chinese EV companies, Nio is the only one capable of generating net positive CAGR as you can see Xpeng and Li Auto drastically falling behind the rest of the pack. Nio even outperformed its North American competitors, General Motors and Tesla. I chose these two as comps because they are both the biggest competitors internationally against the up and coming Chinese EV companies, and have the potential to even dominate a share of China’s EV market should the government allow it. I did not include Nikola in this as they are a pathetic scam in my opinion, but also because all of their numbers were so incredibly negative that it was completely skewing the data sets. So overall here is the ranking of these companies when compared against each other and the average:

  1. Nio Inc ($NIO)
  2. Tesla Motors ($TSLA)
  3. General Motors ($GM)
  4. Li Auto ($LI)
  5. Xpeng Motors ($XPEV)

Analyst Coverage

Analyst coverage is a very important factor for the majority of investors. Often times upgrades and downgrades can drive stocks for the month and can even act as the fire that lights up the volume of it. There is an expectation that analysts know what they are talking about but do keep in mind there is often a ton of outside influences on their decisions, such as the investment of their firm and political influences. Look more into how Enron extorted brokers for a 100% buy rating.

Anyways, we see a lot of holds obviously as these companies have very rocky financials for the most part. Tesla and General Motors, having been in the spotlight for much longer and in a grander way, have the highest amount of buy ratings. There is only 1 sell rating across the entire data set and that comes from Tesla, which is expected due to the controversy of its growth and I will not consider it a threat. General Motors has a signifigant amount of Hold ratings due to their volatile past and overall historical decline which they are just now compensating for with a break into the EV market. This is likely to shift bullish in the future as the stock has seen growth as of late. The Chinese stocks are lacking in coverage as they are just now getting the attention of investors internationally, however they all have a significant amount of buy ratings and their coverage is far more positive than their American counterparts on a % of ratings basis. For that, I will rank them higher than Tesla or GM.

  1. Xpeng Motors ($XPEV)
  2. Li Auto ($LI)
  3. Tesla ($TSLA)
  4. Nio Inc ($NIO)
  5. General Motors ($GM)

YTD Performance

These companies are the hottest investments on the market right now, flat out crushing the indices and reaping in rewards for investors. The fear of missing out (FOMO) is a huge factor in these companies and the idea that each of them can be the next industry leader. So far we are seeing each company get an equal share of the hype – driven up or down by their ability to meet the obligations of the market. (ie,. crushing earnings and meeting demand for delivery). NIO has ran laps around the rest of its peers as it was the first to receive such attention and came from the lowest of prices, having plunged to $2 a share in what feels like centuries ago. General Motors has moved the weakest as it is a value play that has been in the game for decades and has other segments it relies upon for growth. Xpeng’s massive 40% move today pushed it above Li Auto and has it catching up to Tesla. Whether or not that happens, only time will tell.

  1. Nio Inc ($NIO)
  2. Tesla Motors ($TSLA)
  3. Xpeng Motors ($XPEV)
  4. Li Auto ($LI)
  5. General Motors ($GM)

Short Float

This sector has enough of the market betting against it to make any value investor go pale. However it has not stopped the companies at all, and the bears have been ripped to shreds as seen in the YTD performance. Li Auto has the highest short float at 15% as it is the youngest and smallest of the Chinese EV trio and is still relatively new. Investors often hear about Xpeng or Nio first before they find out about Li Auto so it does not attract the same hype as its counterparts, leaving investors to value it more heavily on its fundamentals which are gutter trash as it is still in its growth stage. The social media war between Elon Musk and his short sellers has seen the short float drop drastically from the double digits to where it currently sits at just over 6%. This is likely to go down in the future as it has been validated in its addition to the S&P 500, showing to investors that it is no longer the shitty growth stock they used to bully it for. General Motors on the other hand has little to no short sellers as it is still in the “old boys club” of stocks. The street favors it much more highly given its massive track record and mega market cap. As these companies gain more in share price and attention, they will most likely get caught in the cross-hairs of sell side analysts more often.

  1. General Motors ($GM)
  2. Nio Inc ($NIO)
  3. Tesla ($TSLA)
  4. Xpeng Motors ($XPEV)
  5. Li Auto ($LI)

Margins

Margins are one of the best ways to value a company’s operation capabilities, regardless of whether or not it has positive cashflows. In the automotive industry, operating margins are a very important number but often fall flat due to the capital intensity of the industry. Companies such as the ones listed will often have highly negative margins as they are still finding solid ground for their balance sheets and are focused on delivering on their promises to customers and developing a pipeline of sales.

With that in mind, we need to currently focus on which is the shiniest of the turds as every Chinese EV stock currently has crippling negative operating margins. Despite previous remarks, Li Auto has been shown to have the upper hand on Nio and Xpeng, with a significantly higher gross margin as well as less negative operating and net profit margins. Xpeng has a lot of catching up to do as it has nearly a negative 130% operating margin. General Motors and Tesla still come out on top as they have dealt with these financial issues long long ago.

  1. Tesla ($TSLA)
  2. General Motors ($GM)
  3. Li Auto ($LI)
  4. Nio Inc ($NIO)
  5. Xpeng Motors ($XPEV)

Liquidity Multiples

Liquidity multiples are not something used often other than Current Ratio, which is the most important of the three in my opinion. The Current Ratio tells you how many times over a company can pay off its current debt with the value of its current assets. The Quick Ratio is what tells you if a company can pay off its current liabilities with its current liquid assets. The Cash Ratio is a spin off of this in which the current liquid assets are replaced with merely cash and cash eqiuvalents. It is far more restrictive and pins the company for a lack of cash on hand which is not exactly fair given the current stage of these companies.

Anyways, Li Auto has the highest of these margins by a longshot. This is most likely due to its smaller size as companies just starting out will have less assets and liabilities and will show incredibly volatile multiples. Once it achieves a higher valuation this will taper off and most likely join its Chinese counterparts. Tesla and General Motors have the smallest of these ratios as they have much bigger balance sheets and expanded operations. Xpeng and Nio are second best to them as they are just now beginning to enter a valuation phase where it is harder to maintain such a high ratio like Li Autod does. The industry overall has very good ratios however which is a surprise given the financial state it is in.

  1. Li Auto ($LI)
  2. Xpeng Motors ($XPEV)
  3. Nio Inc ($NIO)
  4. Tesla ($TSLA)
  5. General Motors ($GM)

Leverage

Financial leverage expands upon the liquidity ratios I mentioned above by comparing assets and capital to the debt. I chose the total amount of each fundamental to accomodate for the difference in growth and size beteen General Motors, Tesla, and the up and coming Chinese EVs, which have much more near-term obligations as they are still growing.

Nio automatically raises a red flag as its Total Debt / Total Equity is in fact negative, and by a significant amount which implies it has negative shareholders eqiuty. In a realistic world, this would imply Nio is on the brink of being dissolved and that there is a massive liquidity draught from investors fleeing ship. The company has been successful thus far despite this because of how incredibly cheap debt is, and Nio is swimming in it. Should interest rates rise in China or the US, this could destroy the company in the short-term. However with Yellen being brought back into the fight, it is highly unlikely US interest rates will go anywhere anytime soon.

General Motors has the highest Debt/Equity as it has been on the rocks financially for a while now and has a lot of issues to get through on its massive balance sheet. This is the equivalent to a senior citizen being bound to a wheelchair. Whether or not it can compete with the young and tough Tesla is dependant on their current investment strategy in EV, and if Nikola is anything to go by, I don’t think they stand much of a chance unless they get more competant management.

  1. Li Auto ($LI)
  2. Xpeng Motors ($XPEV)
  3. Tesla ($TSLA)
  4. General Motors and Nio have tied as they are both equally dog shit in this regard

Institutional Ownership

This helps signify if the street is putting its money where its mouth is, and also shows us where that particular mouth is. Li Auto has seen investor activity quadruple as funds and ETFs have quickly added it to their holdings. This is set to taper off as it grows and solidifies itself amongst its peers. Meanwhile, funds cannot find the door fast enough as they run far the hell away from General Motors, with 54% selling off as of late. My guess is that the Nikola screw up made the boomers spit out their coffee during the live stream and realized GM’s EV potential is dead in the water until further notice. Tesla’s lack of institutional ownership can be attributed to funds 1) taking profit, or 2) selling off as TSLA no longer qualifies for their fund and finally 3) Institutions shifting their assets into other EV stocks as Tesla is no longer the only signifigant eqiuty in the basket and there is room for more growth oppurtunity in smaller companies like Nio, which has seen a neat 43% raise in institutional ownership. Funds are getting their feet wet and slowly adjusting to having a position in the Chinese EV market. The Chinese EV market is in fact dominating and Xpeng and Li Auto have both soared as well, due to the recent spike in confidence that the trade war with the US will end under Biden and that renewable energy is the future of China.

  1. Li Auto ($LI)
  2. Xpeng Motors ($XPEV)
  3. Nio Inc ($NIO)
  4. Tesla ($TSLA)
  5. General Motors ($GM)
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Geographic Exposure (As % of Revenue)

Geographic revenue is pretty rigid right now as the Chinese stocks are landlocked in China. Whether or not Tesla dominates the market in China is everyone’s concern right now and when you see that the operating leases of Li, Xpeng and Nio are primarily financed through CCP subsidiaries, you realize China has no interest in foriegn invasion of market share. Tesla may gain some footing, but I think the market will primarily be contested between the three stocks that call it home as they are being funded similar to the US funding the space race with Nasa and Boeing. The 0.4% other is from a supposed revenue stream coming from Macau, of all places. Not sure what to make of that. General Motors has the most diverse revenue geography with 13% of revenue coming from places outside of Asia and the US. Given their signifigance in the broader automotive and industrial industry, this is to be expected. Tesla has focused primarily on the US during its massive growth phase and the incentives raised by those such as California who made it much more attractive to own their products. They are slowly breaking into Hong Kong and Mainland China but are waiting on more interest from the government entities, and as I said above that is not likely going to turn out in their favor enough for it to move markets. Overall I will be ranking them on their diversity of geography.

  1. General Motors ($GM)
  2. Tesla ($TSLA)
  3. Tie for third between the Chinese EVs – Nio, Li, and Xpeng Motors

And last but not least…

Supply Chain Analysis

The supply chain is critical to any corporate infrastructure. A weak link can break the whole chain and having a higher amount of suppliers and customers means less risk if one of them fails to accomodate.

Given the developments the Chinese EVs are still going through – and considering their funding by government subsidiaries – private and public contractors are not too present in their supply chains. Nio, hower, has 31 suppliers and 7 partners it sources from. This would often be a good indicator, however with the previous liquidity and margin ratios it tells us that they have a huge cash problem if they are losing so much money despite such a signifigant backbone of a supply chain. Verticle integration is certainly out of the picture for Nio anytime soon as they cannot even stand when supported by others. It is currently a free rider and being pushed to its current value by these partners and suppliers – not that this will stop any time soon. Given that they are just now rolling out production, it shows them having 0 customers. Disregard this.

Given the massive networking conglomerate that is GM, they have 441 suppliers and 39 customers – those 39 customers probably being worth trillions in combined market cap. I grabbed these numbers from FactSet as my bloomberg terminal is close to 200 miles away. If you have access to one though and are curious, run the SPLC function on GM and see what you get.

  1. General Motors ($GM)
  2. Tesla ($TSLA)
  3. Nio Inc ($NIO)
  4. Li Auto ($LI)
  5. Xpeng Motors ($XPEV)

Do what you will with these numbers and factoids. How you weigh each factor and the ranking of the companies is up to you. Li Auto and General Motors tied for first as they are both the biggest and smallest companies in the basket. NIO is second place and overall I would consider it to be the most level headed choice as it is not too big or too small, not too volatile or too stagnant among other things. I personally have shares in NIO as of $31 and don’t regret it, however I don’t look to expand my exposure to the sector anytime soon as I’m currently tied up in other investments. Here is the full album of the stats, enjoy!

imgur.com/a/OGA9nSc

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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