NIO (NIO 2.45%) and ChargePoint (CHPT 4.72%) represent two very different ways to invest in the growing electric vehicle (EV) market. NIO is a leading producer of electric sedans and SUVs in China, and it operates a nationwide network of battery swapping stations that enable its subscribers to quickly swap out their depleted batteries for fully charged ones. ChargePoint is an EV infrastructure company that builds EV charging stations for private businesses.
Over the past 12 months, NIO's stock tumbled 44% as ChargePoint's stock sank 20%. Investors retreated from both stocks as rising interest rates drove investors away from the market's pricier, unprofitable, and more speculative companies. But should investors take the contrarian view and buy either of these out-of-favor EV stocks right now?
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NIO faces a troubling slowdown
NIO initially dazzled investors by more than doubling its annual deliveries in both 2020 and 2021. But in 2022 its deliveries only rose 34% to 122,486 vehicles, while its vehicle margin contracted 640 basis points to 13.7%.
That slowdown was caused by supply chain disruptions, COVID lockdowns in China, and extreme weather conditions in certain regions. Intense competition across China's EV market also sparked a pricing war that forced NIO to execute margin-crushing markdowns. Tesla's (TSLA 15.31%) recent price cuts in China exacerbated that pressure.
As a result, NIO's deliveries only increased 20% year over year to 31,041 vehicles in the first quarter of 2023, and actually dropped 22% sequentially from the fourth quarter. Its vehicle margin also shrank to a mere 5.1%. It expects that slowdown to persist with a sequential drop to just 23,000-25,000 deliveries in the second quarter.
That slowdown puts NIO behind many of its domestic competitors. By comparison, Li Auto (LI 7.63%) -- which produces plug-in hybrid electric vehicles (PHEVs) -- saw its deliveries grow 177% in 2021, 47% in 2022, and another 66% year over year to 52,584 vehicles in the first quarter of 2023. Li also ended the first quarter with a higher vehicle margin of 19.8%.
As NIO's vehicle margins shrink, it's plowing more cash into the expansion of its capital-intensive battery-swapping network. In other words, NIO's revenue growth will likely decelerate as it racks up staggering losses for the foreseeable future.
For 2023, analysts expect NIO's revenue to rise 36% to 67.0 billion yuan ($9.35 billion) as its net loss widens from 14.6 billion yuan to 15.8 billion yuan ($2.2 billion). NIO's stock might seem cheap right now at less than two times this year's sales, but it probably won't command much of a premium unless its growth accelerates and it narrows its losses.
ChargePoint is still growing like a weed
ChargePoint's revenue rose 65% to $241 million in fiscal 2022 (which ended in Jan. 2022) as its number of charging ports grew 64% to 174,000. In fiscal 2023, its revenue surged 94% to $486 million as its number of ports grew 53% 225,000.
In the first quarter of fiscal 2024, its revenue rose another 59% year over year. It anticipates roughly 41% year-over-year growth in the second quarter, while analysts expect its revenue to rise 47% to $687 million for the full year.
ChargePoint's adjusted gross margin declined from 24% in fiscal 2022 to 20% in fiscal 2023 as it faced fierce supply chain headwinds. But some of those headwinds gradually dissipated, and its adjusted gross margin expanded eight percentage points year over year to 25% in the first quarter of fiscal 2024.
Yet ChargePoint is still deeply unprofitable. Its net loss widened from $132 million in fiscal 2022 to $344 million in fiscal 2023 as it grappled with labor shortages, supply chain constraints, logistics disruptions, and new product launches. But in the first quarter of fiscal 2024, it narrowed its net loss year over year from $89 million to $79 million. Analysts also expect it to narrow its net loss to $279 million for the full year.
Based on those expectations, ChargePoint looks reasonably valued at about five times this year's sales. It's also the clear market leader with a 65% share of the independent EV charging station market, and its revenue should continue to climb as the EV market expands. But like NIO, its lack of profits could make it unappealing as long as interest rates stay high.
The clear winner: ChargePoint
I wouldn't rush to buy either of these volatile stocks right now, but ChargePoint is clearly the better pick than NIO for four simple reasons: It's growing faster, its net losses are stabilizing, it doesn't face too many direct competitors, and it doesn't need to worry about the delisting threats that are still looming over NIO and other U.S.-listed Chinese stocks.
