NIO (NIO 5.26%) has had a remarkable run, with shares of the Chinese electric-vehicle (EV) maker up more than 1,680% over the past year. This jump is likely due to growing excitement in EV stocks and about the ongoing automotive revolution and NIO's role in making it global.
There's great potential in NIO, but the stock has a lot of that potential already baked in. NIO is valued by the market at more than $90 billion, or more than 30 times sales. That's pretty frothy for a company that delivered 43,728 vehicles in all of 2020.
It is certainly possible NIO will quickly grow into that valuation, but investors buying in today need to understand that is not a given. While respecting NIO's potential, three Fools believe Hyliion Holdings (HYLN 1.55%), Ford Motor (F 6.10%), and General Motors (GM 1.98%) are better buys right now, and here's why.
Image source: Getty Images.
A start-up embedded with the incumbents
Lou Whiteman (Hyliion): Hyliion, like NIO, is part of a generation of new companies pushing to speed the electrification of vehicles. But the company is far from an "all or nothing" sort of bet and is well positioned to thrive in a world where the newcomers make their mark. However, the dinosaur incumbent automakers are still a major force.
Hyliion is focused on heavy trucks, but unlike Nikola, it isn't trying to replace the existing fleets. Rather, it is trying to insert its alternative powertrain into the current supply chain and offer a solution that can allow trucks already on the road to go green.
The company has two products. Its first, which is already in production, turns an existing diesel tractor-trailer truck into a more efficient hybrid. The second is a full powertrain that consists of electric motors and a small battery pack, along with a generator powered by natural gas that keeps the battery topped off.
Hyliion is also more of a design and engineering shop than a manufacturing operation. It has no factory of its own; instead, it's partnering with well-regarded auto-parts maker Dana to manufacture products and ship them directly to customers.
Hyliion was one of a number of auto-related companies to go public in 2020 via a merger with a special purpose acquisition company (SPAC). The stock got caught up in the frenzied buying of SPACs last year, but the shares are off more than 60% since the beginning of September.
This is far from a sure bet, but Hyliion has a huge addressable market, a product that solves a lot of issues for fleet managers without forcing them to replace all of their existing trucks, and more than $500 million in the bank to fund operations as it ramps up.
It's a business that has the foundation needed to be a long-term growth story.
This old automaker will thrive in the new battery-powered world
John Rosevear (Ford Motor Company): I'll admit right up front that I've been a fan of NIO for a while. But like lots of new electric-vehicle makers, its stock is now looking quite richly priced. Given that reality, I think this is a great time to take a second look at the so-called "legacy" auto companies.
Some of the old dinosaurs -- some -- are making the right moves not only to adapt but to find bottom-line growth as the world transitions to zero-emissions vehicles.
Ford is one of those companies. While Ford still generates the bulk of its profits from trucks and SUVs powered by internal-combustion engines, it has spent the last few years preparing to preserve (and even grow) its share of those EV markets as internal combustion falls by the historical wayside. CEO Jim Farley, who took the top job in October, has already begun accelerating that transition with an eye to boosting Ford's profitability.
Ford has built a complete software ecosystem to support the Mustang Mach-E and its upcoming electric vehicles, just as you'd expect from any hot start-up. Image source: Ford Motor Company.
Can an old company like Ford build a great electric vehicle? That question was a good one as recently as a year or two ago, but it has been resoundingly answered by the new Mustang Mach-E (read any review to see what I mean). There are many more electric Fords on the way, including battery-powered versions of two of its most profitable products -- the F-150 pickup and Transit commercial van. Both are expected to arrive over the next year or so.
Ford also has a big stake in one of the most promising autonomous-vehicle start-ups -- Pittsburgh-based Argo AI -- and plans to roll out hands-free driving on the Mach-E and several other models later this year.
Best of all, Ford is still fairly cheap, trading at just 10 times its expected 2021 earnings. And while its dividend was suspended last spring amid the COVID-19 pandemic, it's likely to return soon, providing another incentive to buy and hold the shares.
You might have to be patient, but I think there's a good chance that Ford's stock will outperform the market by a nice margin as auto investors catch on to its story.
GM is objectively better than Nio
Rich Smith (General Motors): I could probably name a dozen stocks -- just off the top of my head -- that are better than China's Nio. But instead, I'll just name one: General Motors.
After all, what exactly do we mean when we say "better than Nio?" Are we talking about the size of the business? With $115.8 billion in trailing sales, GM is more than 60 times bigger than Nio. Or are we talking about profitability? GM only earns about 4.4 cents for every $1 in sales in makes, but that still added up to $3.4 billion in profit over the last 12 months. Meanwhile, for every $1 in sales Nio records, it loses $0.52 -- and Nio lost $1 billion over the last year.
Granted, NIO may be growing its sales faster than GM. Sales at the Chinese EV maker more than doubled through the first three quarters of 2020 compared to the first three quarters of 2019. But until Nio proves that it can earn a profit on those sales, it's going to be harder to find a company that's worse than Nio than to find one that's "better."
One thing's for sure: At a valuation of only 18.9 times trailing earnings and just 0.55 times sales, GM stock is certainly cheaper than Nio! (For that matter, with the S&P 500 currently selling for 38.3 times earnings, GM costs half as much as most stocks.)
And if you want the most apples-to-apples comparison of all, here it is: In Q3 2020, General Motors and its joint venture partner sold 55,781 units of their Hong Guang Mini electric vehicle in China. Nio delivered fewer than 45,000 cars all year. By that most objective of all standards, GM stock is clearly doing better than Nio.
