Nio released earnings Wednesday. Here’s how to value its stock compared to Tesla, Ford and other rivals

So the place does Nio
NIO,
-0.57%,
which reported second-quarter outcomes after the inventory market closes Wednesday, slot in an funding thesis? Under are screens exhibiting how its inventory valuation compares to car manufacturing, and the way that valuation pertains to projected earnings via 2025.

Learn: Nio shares rise after narrower quarterly loss for Chinese language EV maker

Doubling automobile manufacturing

For the second quarter, Nio delivered 21,896 autos for a 112% enhance from a 12 months earlier. The expansion is spectacular, however the complete variety of autos bought continues to be comparatively small.

Right here’s a have a look at the ten largest auto makers by market capitalization, together with their second-quarter gross sales or supply numbers (whichever was larger, if each have been reported) and extra shade beneath the desk:

Click on on the tickers for extra about every firm.

You may see that these valuations are concerning the future, when innovators within the EV house — Tesla Inc.
TSLA,
-0.31%
and Nio, on this checklist — might (or might not) turn out to be as massive as legacy gamers.

For now, Ford
F,
+0.80%
churns out largely inner combustion engine (ICE) autos at almost 35 occasions the speed that Nio makes EVs.

One factor to concentrate on is that the legacy auto makers don’t all report their unit gross sales the identical method. Most don’t escape electrical car gross sales.

Amongst people who do, definitions fluctuate. For instance, Toyota Motor Corp.
TM,
+0.82%

7203,
+0.27%
reported that “electrified car” gross sales made up 26.6% of complete auto gross sales through the second quarter. However that class consists of:

• HEV – hybrid EVs that aren’t plug-ins.

• PHEV – plug-in electrical autos.

• BEV – battery electrical autos.

• FCEV – fuel-cell electrical autos.

For Toyota, BEV made up solely 0.2% of second-quarter gross sales, whereas they accounted for 100% of gross sales for Nio and Tesla. Toyota’s PHEV gross sales made up 1.4% of the full.

Volkswagen AG
VWAGY,
+1.52%

VOW,
+0.60%
studies electric-vehicle gross sales as together with PHEV, which accounted for six.7% of second-quarter gross sales, or BEV, which made up 4.4% of complete gross sales. These are spectacular numbers: a mixed 11.1%.

For Bayerische Motoren Werke Aktiengesellschaft
BMWYY,
+0.56%

BMW,
+0.54%,
higher generally known as BWM Group, a second-quarter breakdown of electric-vehicle deliveries isn’t but accessible, however for the primary half of 2021, 153,243 all-electric or plug-in hybrid autos have been delivered, or 11.4% of complete deliveries.

Valuation to earnings estimates

For firms at early phases, comparisons of price-to-earnings ratios might not imply very a lot. Such firms are specializing in progress fairly than earnings. An instance of this has been Amazon.com Inc.
AMZN,
-0.86%,
which has traded at a excessive P/E for many years because it has labored to develop into new traces of enterprise, on the expense of the underside line.

A excessive P/E ratio can replicate buyers’ enthusiasm for innovation and within the case of EVs, a political consensus for reworking the business. So Nio and Tesla commerce at a lot larger P/E ratios than the legacy auto makers.

Then once more, very low P/E might present an excessive amount of contempt amongst buyers for the older producers, as they use their money move from persevering with huge gross sales of conventional autos to fund their growth of EVs. Alternatives could also be highlighted.

Usually a ahead P/E ratio is calculated by dividing the share worth by a rolling consensus estimate of earnings per share for 12 months. This isn’t accessible for all the businesses listed right here, so we’re utilizing consensus estimates for internet earnings for calendar 2022.

First, listed here are P/E ratios based mostly on present market caps and consensus 2022 estimates amongst analysts polled by FactSet. The desk consists of the annual estimates going out to 2025, and in addition a P/E based mostly on present market caps and the 2025 estimates:

Nio is predicted to turn out to be worthwhile in 2023. Looking to 2024, its ahead P/E is decrease than that of Tesla. To place the ahead P/E valuations in perspective, the S&P 500 Index
SPX,
+0.25%
trades for a weighted 20.5 occasions consensus 2022 EPS estimates.

Valuation to gross sales

Ahead price-to-sales estimates is likely to be extra helpful for early-stage firms which are exhibiting low earnings or internet losses. Then once more, the identical distortions apply: Traders love the pure-play EV makers now, and could also be paying an excessive amount of for them when you think about that shares of Nio have greater than tripled over the previous 12 months, whereas Tesla’s inventory has risen 150%.

Right here’s an analogous set of knowledge driving price-to-sale ratios, once more utilizing present market caps (within the first desk on the high of this text) and consensus full-calendar-year estimates in tens of millions of U.S. {dollars}:

For reference, the S&P 500 trades for two.7 occasions its consensus 2022 gross sales estimate.

Analysts’ opinions

Right here’s a abstract of opinion of the ten auto makers amongst analysts polled by FactSet. For firms with major listings outdoors the U.S., the native tickers are used. All share costs and targets are in native currencies:

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