RIVN - NIO XPeng And Li: What Deliveries Tell Us

2023-12-02 07:00:00 ET

Summary

• NIO's November deliveries were down 1% month-to-month and up 13% year-over-year, indicating slower growth compared to its peers.
• XPeng delivered 20,000 vehicles in November, a 245% increase compared to the previous year, showing strong and consistent growth.
• Li Auto delivered 41,000 vehicles in November, the highest among the three companies, with a 173% increase compared to the previous year, and is already profitable.

Article Thesis

Some of the major Chinese EV pure-plays have released their sales numbers for November in recent days. NIO ( NIO ), XPeng ( XPEV ), and Li Auto ( LI ) have each reported how well they did during the period. We will take a look at the deliveries for these three and will try to evaluate what it means for the performance of these three stocks.

Delivery Numbers For November 2023

Many automobile companies release monthly sales numbers, which gives investors a precise and timely gauge of how well these companies did on a monthly basis. Of course, one-time issues such as factory upgrades or model line-up changes can impact production numbers on a month-to-month basis, which is why deliveries can also be volatile in some cases. Nevertheless, the numbers can be telling about how well a company is doing in terms of demand creation, and also when it comes to scaling up production and ramping up its operations over time.

NIO

NIO reported that its deliveries totaled 16,000 vehicles during the month of November. That was down 1% on a month-to-month basis, which isn't great, but which is also not necessarily a disaster. Potentially more telling, deliveries were up by 13% compared to the previous year's month. That makes for some growth, but a low-teens growth rate surely isn't explosive enough to excite investors -- the EV industry is a major growth market, and an EV pure-play should ideally be able to grow a lot faster than 13% on a year-to-year basis.

We will see that NIO's two peers XPeng and Li Auto have managed to grow at a much faster rate than NIO, thus overall demand for EVs in the home market of these three companies isn't an issue -- otherwise, no EV player would report a lot of growth. Since NIO is growing at a rather small pace while at least some competitors are doing a lot better, company-specific factors have to be at play. NIO has, in the past, had issues with suppliers and supply chains, but it is also possible that the ongoing price war in the Chinese EV market plays a role. NIO's products are sold at rather high prices, and with Tesla ( TSLA ) lowering the prices of its models aggressively over the last year, some consumers might decide that NIO's vehicles are too expensive now, compared to the prices that other EV manufacturers are demanding for their vehicles. This could explain why NIO wasn't able to grow its sales volumes at a high pace. When we look at the year-to-date number for NIO, we see deliveries of 142,000 vehicles. That's up 33% year-over-year -- which is better than the growth rate during November, but still not overly strong. If NIO were to grow at a 33% pace for the coming years, it could take NIO quite some time to hit a yearly sales number of 500,000 to 1,000,000 vehicles, where profitability would be a lot easier compared to the current sales pace due to scale effects and operating leverage.

XPeng

XPeng is not very well known in the US and other Western countries, but the company has performed phenomenally during 2023. In November, XPeng delivered 20,000 vehicles, which is in the ballpark of the NIO deliveries number, but which was up by a hefty 245% compared to the previous year's month.

Of course, growing deliveries by several hundred percent is easier when deliveries are measured in the thousands and not the millions, but the huge ramp-up in deliveries is still outstanding -- the comparison to NIO's much smaller deliveries growth rate proves that.

On a year-to-date basis, XPeng has delivered very consistent growth: Its deliveries have now risen for 10 months in a row, proving that the November numbers were not an outlier. Instead, they are part of the ongoing successful ramp-up of XPeng's operations, driven by models such as the G6 all-electric SUV that contributes more than 40% of XPeng's overall deliveries. It looks like XPeng is doing well both in terms of ramping up its production without running into bottlenecks, while the company also manages to attract a steadily rising number of customers. These are major competitive advantages in the embattled EV market and could help XPeng in growing for many years to come.

XPeng isn't profitable yet, but if the company keeps growing at a pace this high, it will likely not take too long until the company is able to break even.

Li Auto

Li Auto is a bit of an outlier among this group of EV players, due to two reasons: First, its technology includes so-called range extenders that are powered by internal combustion engines. This makes it easier for the owners of these vehicles to travel long distances in a short period of time and can help ease range anxiety. The Li Xiang One, for example, Li Auto's first model, has a battery of a little more than 40 kWh, which is more than enough for everyday driving. But if the owner of the vehicle wants to do a long road trip, the vehicle can drive for around 550 miles including the range extender. Some might argue that this means Li Auto isn't a real EV player, but since the primary tech these vehicles use is the electric drivetrain, I believe that it makes sense to categorize Li Auto as an EV player. The second item that makes Li Auto stand out from its peer group is the fact that the company is profitable already -- most other EV players, including NIO, XPeng, Rivian ( RIVN ), Lucid ( LCID ), and many more are generating losses.

Li Auto delivered 41,000 vehicles in November, which is the highest number, by far, among the three companies covered in this report. The deliveries number for November was up by 173% compared to the previous year's period, which is very strong. Relative growth was not quite as good as what we have seen at XPeng, but considering the much higher starting sales pace and the fact that Li Auto is profitable, I still believe that it takes the overall performance crown among these three companies for November.

The company guides for deliveries of around 50,000 vehicles for December, which would make for a hefty month-to-month increase of 25%. At 50,000 vehicles per month, Li Auto would be on track for 600,000 vehicles next year -- even if deliveries do not grow throughout all of 2024. When we consider the strong growth track record in the recent past, that seems like a pretty conservative estimate, thus we might see deliveries come in well ahead of 600,000 vehicles next year. Li Auto has grown very consistently this year, as its deliveries have increased during every single month of 2023. With momentum clearly on its side, I believe that the upcoming year could be a very strong one for the company.

NIO, XPeng, Li: Which Of These Companies Is An Attractive Investment?

The fastest-growing company is not necessarily the best investment, and the same holds true for the biggest company. Considering multiple factors, such as relative growth, growth consistency, relative size, and margins, I believe that Li Auto is the most appealing company among these three right here.

It has the best profitability by far, has the largest size and scale, has the most consistent growth rate, has a very high relative growth rate, and its near-term guidance (deliveries outlook for December) is excellent.

XPeng's relative growth rate is excellent, but the fact that it isn't profitable yet and the fact that it is significantly smaller in absolute terms compared to Li Auto makes me favor Li over XPeng.

NIO has a USP via its battery-swapping technology, but it has had a hard time in scaling up its operations. The company also isn't profitable, and the fact that management is investing in smartphones seems rather questionable to me -- the company should focus on improving its EV business, I believe, before entering another highly competitive market.

At 27x forward net profits, Li Auto does not seem especially expensive -- contrast this to Tesla's earnings multiple of 75, while Li Auto is growing way faster. Of course, one can argue that Tesla has lower political risks due to being headquartered in the US and that Tesla's FSD tech might be worth a lot in the long run. But I still believe that an ultra-fast-growing EV player such as Li Auto looks comparatively attractive with an earnings multiple in the 20s.

For further details see: