Nio (NIO 5.26%) and Lucid (LCID -2.86%) offer investors two very different ways to invest in the growth of the electric vehicle (EV) market. Nio is one of China's leading manufacturers of electric sedans and SUVs, while Lucid is an American manufacturer of luxury sedans that is heavily backed by Saudi Arabian investors.
Nio went public through a traditional initial public offering in 2018. Lucid went public by merging with a special purpose acquisition company (SPAC) in 2021. Both stocks hit record highs during the buying frenzy in growth and meme stocks in early 2021, but both collapsed as rising interest rates drove investors toward safer investments. Nio and Lucid now both trade more than 80% below their all-time highs. Should investors buy either of these fallen EV stocks before a new bull market starts?
Image source: Nio.
Nio is still producing plenty of vehicles
Nio currently sells four types of SUVs (the ES8, ES6, EC6, and ES7) and two types of sedans (the ET5 and ET7). Those vehicles are all supported by its subscription-based network of battery-swapping stations, which enable its drivers to quickly swap out their depleted batteries for fully charged ones.
Nio's deliveries grew 113% in 2020, 109% in 2021, and 34% to 122,486 vehicles in 2022. Its revenue grew 36% to 49.3 billion yuan ($7.1 billion) in 2022, but its adjusted net loss widened from 3 billion yuan to 12.1 billion yuan ($1.8 billion).
Nio's growth cooled off in 2022 as the entire Chinese auto sector was disrupted by COVID-19 lockdowns, extreme weather conditions, and supply chain constraints. All those headwinds reduced its gross margin from 18.9% in 2021 to 10.4% in 2022. Its ongoing investments in its battery-swapping network exacerbated that pressure.
However, Nio's growth will likely accelerate again in 2023 as China rolls back its zero-COVID restrictions and the supply chain constraints finally ease. Analysts expect Nio's revenue to rise 74% to 85.9 billion yuan ($12.5 billion) this year as it narrows its net loss to 11.7 billion yuan ($1.7 billion). It ended 2022 with 45.5 billion yuan ($6.6 billion) in cash, cash equivalents, and short-term investments, so it won't need to raise fresh funds anytime soon. However, investors should note that its high debt-to-equity ratio of 2.8 could make it tough to raise more cash if its liquidity runs dry.
Lucid is struggling to ramp up its production
Lucid only sells a single vehicle, the Air sedan, but it plans to launch its next vehicle, the Gravity SUV, in 2024. It initially aimed to produce 20,000 vehicles in 2022, but supply chain constraints reduced that actual number to 7,180 vehicles.
Lucid only delivered 4,369 of those vehicles during the year to generate $608 million in revenue. That represented a big leap from its $27 million in revenue in 2021, but it only started shipping its first vehicles in October 2021. But on the bottom line, it posted a staggering net loss of $2.6 billion as it aggressively ramped up its production. For 2023, analysts expect its revenue to more than double to $1.3 billion as it narrows its net loss to $2.3 billion.
Lucid expects to produce 10,000 to 14,000 vehicles this year, but its outstanding reservations (excluding the Saudi Arabian government's recent commitment to buy 100,000 vehicles from Lucid over the next decade) still declined sequentially over the past two quarters, dropping from a peak of 37,000 reservations to only 28,000 reservations.
Those cancellations suggest that Lucid's delays and the macroeconomic headwinds are dampening the market's enthusiasm for its pricey vehicles, which start at $89,000. Nevertheless, the company still believes it can ramp up its annual production to 500,000 vehicles by 2025 as it significantly expands its domestic and overseas production capabilities.
Lucid raised $1.5 billion in an equity offering last December, which enabled it to end the year with $3.9 billion in cash, cash equivalents, and short-term investments, so it won't run out of cash anytime soon. Its manageable debt-to-equity ratio of 0.8 could also give it more breathing room than Nio to raise fresh funds.
The valuations and verdict
Nio trades at just 1.4 times this year's sales, which makes it dirt-cheap relative to its growth potential. However, its valuation is likely being depressed by the near-term concerns regarding the delisting threats for U.S.-listed Chinese stocks. Lucid still trades at nearly 11 times this year's sales, which suggests that investors are still hopeful that it can overcome its growing pains and ramp up its production over the next few years.
Both of these EV stocks are risky plays in this wobbly market. But if I had to choose one, I'd pick Nio because it's already ramped up its production, its battery-swapping network generates sticky subscription revenue, and its stock is a lot cheaper.
