The automobile industry is experiencing impressive growth as the world economy continues to reopen. Further, several legacy manufactures are now looking to gain traction in the electric vehicle (EV) space, allowing them to grow top-line at an accelerated pace going forward.
The EV industry continues to flourish due to supportive government policies, subsidies as well as a low-interest-rate environment, and the worldwide shift towards clean energy solutions.
Keeping these factors in mind, let’s compare one of the largest pure EV manufacturers in the world, NIO (NIO), with legacy manufacturer, Ford Motor Company (F), to see which is a better stock to buy now.
NIO stock has gained close to 600% since IPO
Shares of NIO have crushed the broader market since it went public in late 2018. NIO stock is up close to 600% in less than three years. Despite these stellar returns, it's down 32% from all-time highs, allowing investors an opportunity to buy the dip.
NIO began its EV shipments in June 2018 and delivered close to 22,000 vehicles in the second quarter of 2021, an increase of over 100% year over year. While the company is building a manufacturing plant in Hefei it partnered with Jianghuai Automobile Group for vehicle production until now. Jianghuai Automobile has an annual production capacity of 120,000 units and this collaboration offered several cost benefits for NIO.
Further, NIO is based out of China which is also the largest EV market in the world right now. However, investing in Chinese companies carries certain risks given that its government can interfere with enterprises as we have seen in the past year. Chinese ADRs such as NIO have lost ground in the last two weeks as China has clamped down on DiDi as well as other publicly listed education companies.
NIO has confirmed it would now look to expand into other international markets which will be a key driver of revenue growth. The company is forecast to increase sales by 112% to $5.41 billion in 2021 and by 64.6% to $8.91 billion in 2022. Given its market cap of $69 billion, NIO stock is currently trading at a forward price to 2022 sales multiple of 7.74x which is not too steep for a growth stock.
Ford stock is up 66% in 2021
Valued at a market cap of $58 billion, Ford Motor is forecast to increase sales by 12% to $129.72 billion in 2021 and by 18.5% to $153.65 billion in 2022. Comparatively, its earnings per share are expected to rise at an annual rate of 53% in the next five years. It suggests Ford stock is trading at a price to 2022 earnings multiple of 8.15x and a price to sales multiple of less than 0.5x which is extremely cheap given Ford’s growth estimates.
Ford stock is up over 4% in early market trading today as it managed to beat Wall Street estimates for Q2. In the June quarter, Ford reported sales of $26.8 billion with adjusted earnings per share of $0.13. Analysts expected Ford Motors to report sales of $23.84 billion and a loss of $0.10 per share in Q2. In the second quarter of 2020, Ford reported revenue of $15.95 billion and a loss of $0.35 per share.
In 2021, Ford Motor has forecast free cash flow between $4 billion and $5 billion which will allow the company to boost its liquidity position, reduce debt and reinvest in growth initiatives. Ford explains that vehicle volume might increase by 30% in the second half of 2021 compared to the first six months of the year which will help it offset higher commodity costs.
The verdict
While NIO is a high-growth stock, Ford is a top value pick right now. However, I believe NIO’s expansion plans in international markets and its leadership position in China make it a better investment compared to Ford Motors right now.
NIO shares were trading at $42.86 per share on Thursday morning, up $1.02 (+2.44%). Year-to-date, NIO has declined -12.06%, versus a 18.86% 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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