Tesla vs. Nikola: Which Electric Vehicle Stock Is a Better Investment?

The electric vehicle (EV) market is poised to gain pace in the upcoming decade, as governments all around the world continue to support the transition towards clean energy solutions. According to a report from Fortune Business Insights, the global EV is forecast to rise from $246 billion in 2020 to $1.32 trillion in 2028, indicating an annual growth rate of 24.3% in this period.

This rapid growth makes EV companies such as Tesla (TSLA) and Nikola (NKLA) enticing long-term bets. While Tesla is a market leader in this segment, Nikola is yet to post any meaningful sales.

Today I’ll analyze TSLA and NKLA to determine which EV stock is currently a better investment.

Tesla stock is up 15,450% in the last decade

Tesla has been a massive wealth creator for long-term investors. The stock has surged by a staggering 15,450% in the last 10 years. So, in case you invested $500 in TSLA stock back in November 2011, your investment would be worth close to $78,000 today. These staggering returns have meant Tesla is now valued at a market cap of over $1 trillion. 

In the third quarter of 2021, Tesla reported sales of $13.8 billion, up 57% year over year. Comparatively, adjusted earnings per share more than doubled to $1.86. Automotive sales rose 58% to over $12 billion while revenue from regulatory credits were down 30% at $279 million. These stellar growth metrics allowed Tesla to lower its debt by 74% year over year to $2.1 billion.

Wall Street forecast the company’s gross margin at 28.4%. But Tesla reported a gross margin of 30.5% in the quarter, which was an increase of 281 basis points compared to the year-ago period. Despite lowering average selling prices by 6%, Tesla ended Q3 with an operating margin of 14.6% which was up 534 basis points year over year.

Analysts expect Tesla sales to rise by 62% to $51.1 billion in 2021 and by 37% to $70 billion in 2022. This will allow the company to increase earnings per share from $2.24 in 2020 to $8.08 in 2022.

Nikola is valued at a market cap of $5.65 billion

Nikola is an electric semi-truck start-up valued at a market cap of $5.65 billion. The company is still pre-revenue and reported a loss per share of $0.22 in Q3. However, it was narrower than loss estimates of $0.28 per share.

Nikola also confirmed it remains on track to deliver up to 25 EVs to customers by the end of 2021. Further, the company disclosed it built seven hydrogen fuel cell EVs that are in the testing stage.

Nikola claimed that it is close to resolving regulatory issues with the SEC. The company’s former Chairman Trevor Milton was accused of misleading investors and faces charges relating to securities fraud. Recently, Nikola confirmed it has allocated $125 million to be paid to the SEC for resolving the ongoing dispute.

Analysts expect Nikola sales to touch $148.53 million next year while its loss per share is estimated at $1.

The verdict

I believe Tesla is currently the better investment.  That’s because Nikola is a much smaller player, compared to Tesla, that’s valued at a price to 2022 sales multiple of 38x.  This ratio for Tesla is much lower at 14.3x. 

Even though its seen a remarkable run over the past decade, Tesla is a top bet for growth investors with a lower risk appetite, like me, given its wide economic moat, improving profit margins and market leadership.

TSLA shares were trading at $994.73 per share on Monday morning, down $38.69 (-3.74%). Year-to-date, TSLA has gained 40.96%, versus a 26.36% rise in the benchmark S&P 500 index during the same period.

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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