17/04/2024
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NIO Vs. Rivian Stock: What’s the Best Buy for 2022?

Even after its 2021 withdrawal, Nio is still a high-performance stock in recent years.  Investors buying a decline in Neo stock are still paying a premium of more than 300% over the price of the stock two years ago.  Neo is one of many shares that rallied on investor enthusiasm for EV investing.

Rivian scores “Perfect 10” from TipRanx’s Smart Score Rating System, indicating that it has the potential to exceed market expectations.

Investment Essay

NIO Inc.  (NYSE: NIO) and Rivian Automotive, Inc.  (RIVEN) is an emerging pure-play EV manufacturer that has been dominating investor attention over the past year.  NIO has proven its EV leadership and manufacturing capabilities with its production partner JAC.  However, Rivian has much more to prove on its production ramp after recently reporting a disappointing FQ4 card.

Nonetheless, some investors may not be comfortable with the NIO, given its Chinese roots.  Therefore, we believe that the valuation of NIO stock has also been discounted to reflect the recent political uncertainty affecting Chinese stocks.  But while RIVEN is at an early stage in its production ramp, valuing RIVEN stock has proven to be even more challenging.

We treat both shares as speculative positions.  Therefore, investors who have no room for speculative shares should avoid both.  We discuss what is best for speculative investors only.

NIO and RIVIAN Stack Key Metrics

NIO Stock EV / NTM Income Evaluation (TIKR)

Recently, NIO’s shares have been battered following a “perfect storm” situation that engulfed Chinese stocks.  In a recent article we discussed how the threat from potential US sanctions, listing removal and weakening COVID-19 lockdowns hit China’s stocks.  Therefore, investors should not be surprised to see NIO stock trading at just 3.5x NTM returns.

Nonetheless, the Riven stock has also hit tremendously after reporting its FQ4 results.  We discussed Rivian’s low FY22 guidance in a previous article, which shows management has cut its production outlook by 50%.  Nevertheless, its stock has risen nearly 17% (buy rating) since our article was published.  However, even though its earnings estimates have been further revised downward, it is still trading at 3.37x depressed EV / FY23 earnings.  Therefore, we believe that most of its near-headwinds have already been priced.

What are the differences between NIO and Rivian

NIO disbursements per month (company filings)

NIO has proven its production potential as one of China’s leading pure-play EV manufacturers.  The company has issued 94.4K vehicles as of February 2022 on a twelve-month basis.  In addition, the company is expected to aggressively compete in China and Europe with its new vehicle range of ET7 / ET5 / ES7 this year.

In addition, NIO also features more advanced NIO Pilot Advanced Driver Assistance System (ADAS) technology.  CnEVPost (Edited) reports that the company has high ratings for vehicle quality in China: “The number of failures per 100 new NIO vehicles is 49, lower than any other car brand in China and an industry average of 135, according to a ranking released on March 15 by China’s largest automotive website AutoHome.”

Rivian Pre FQ4 Production Guidance (Company Filings, Barons)

In contrast, Rivian guided the production of only 25K in FY22 because it was severely hit by global supply chain disruptions that engulfed the automotive industry.  Therefore, this is a significant decline from its previous 50K forecast, which is lower than previous consensus estimates of 40K deliveries.  Thus, Rivian’s production ramp has proven to be less elastic than NIO.

Notably, NIO is also not immune from supply chain shocks.  The surge in raw material prices has impacted most players around the world, including EV Leader Tesla (TSLA).  It has also affected BYD (OTCPK: BYDDF), the leading EV manufacturer in China.  Both companies have increased the cost of their vehicles to cope with this increase and to protect their margins.

Nonetheless, we believe that NIO’s manufacturing base in China has the advantage over Rivian.  China will be the worldโ€™s largest EV factory by exporting nearly 500K vehicles in 2021, an increase of 260% per year.  It easily conceals 230K exported units in Germany and 110K units in the US.  Notably, DIGITIMES highlighted that China has a “mature” EV supply chain that has contributed significantly to the resilience, efficiency and stability of its EV production.  It has been added (edited):

China will be able to become the world factory of the EV industry thanks to the maturity of its EV critical component supply chain.  China has already set standards for making batteries used in EVs, raw materials used for battery anode materials, and the cost of assembling EVs, while the associated costs are only half that in other places.

Therefore, we think NIO has a significant production ramp advantage compared to Rivian.  Investors should not be surprised that Tesla’s flagship Gigafactory is based in Shanghai.  Its estimated annual run rate of 800K exceeds Fremont’s 450K capacity.  In addition, it is reported that Tesla is updating Shanghai’s ability to reach 1M units.  It is looking for a new plant to double its manufacturing capacity to 2M units.  Given its 500K exported units in 2021, it demonstrated China’s prowess as an EV manufacturing base.  NIO plans to achieve 600K capacity equivalent to Rivian over the next few years.  However, we feel that NIO is potentially closer to this milestone than Rivian.

Is it better to buy NIO or RIVIAN stock?

If you are an insurer for Chinese EV stocks, there is no need to consider them here.  However, if you believe China is on track to become the world’s largest economy at the right time, then read on.

We are confident in NIO’s proven manufacturing capabilities, expansion plans and technology.  In many respects, we think NIO is easily ahead of Rivian.  Yes, NIO stock may still be influenced by nearby geopolitical headwinds.  However, we believe that investors can use these opportunities to add exposure to NIO stock and build their positions over time.

 Finally

NIO is one of China’s leading pure-play EV manufacturers.  It has a proven technology platform and production ramp capability.

 Rivian was hit for downgrading its FY22 production guidance.  Therefore, the company still needs to prove its production volume.

We discuss why NIO is a good buy only for speculative investors

We are confident that its new product launches could be a near-term catalyst to protect NIO stock against these headwinds.  Therefore, we think NIO stock is a good buy, but only for speculative investors

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