Despite challenges such as a global demand slowdown, oversupply, intense competition and higher interest rates, the electric vehicle (EV) industry remains optimistic and poised for growth amid environmental concerns, the expansion of public charging infrastructure, and government incentives.
High interest rates and inflation notwithstanding, the automobile sector experienced robust growth last year. According to BloombergNEF, global passenger EV sales are projected to increase by 21%, reaching 16.7 million units in 2024.
On top of it, the industry is primed for growth with manufacturer incentives, increased disposable incomes, anticipated interest rate reductions, and technological innovations. Contrary to pessimistic narratives, the IEA’s Global EV Outlook 2024 predicts global EV sales to reach 17 million this year, indicating that over 20% of global car sales will be electric.
Given this backdrop, let’s compare two EV stocks, Li Auto Inc. (LI) and Rivian Automotive, Inc. (RIVN), to understand why LI offers more upside potential.
The Case for Li Auto Inc. Stock
Based in Beijing, the People’s Republic of China, Li Auto Inc. (LI) operates in the energy vehicle market in China. It designs, develops, manufactures, and sells premium smart electric vehicles. The company's product line comprises MPVs and sport utility vehicles.
LI’s stock has declined 48.2% over the past six months to close the last trading session at $21.12. LI’s average analyst price target of $39.36 indicates an 89.5% upside potential.
LI’s revenue grew at a CAGR of 120.6% over the past three years. Also, its Tang Book Value grew at a CAGR of 27.7% over the past three years.
In terms of forward EV/EBIT, LI is trading at 13.63x, 2.5% lower than the industry average of 13.99x. On the other hand, the stock’s forward non-GAAP P/E of 17.54x is 10% higher than the industry average of 15.94x.
In terms of the trailing-12-month net income margin, LI’s 8.70% is 83.4% higher than the 4.74% industry average. Its 4.98% trailing-12-month Capex / Sales is 64.4% higher than the 3.03% industry average. However, the stock’s 5.91% trailing-12-month Return on Total Capital is 4.8% lower than the 6.21% industry average.
For the fiscal first quarter, which ended on March 31, 2024, LI’s total revenues increased 36.4% year-over-year to RMB25.63 billion ($3.57 billion). The company's gross profit stood at RMB5.28 billion ($736.10 million), up 38% over the prior-year quarter.
However, its non-GAAP net income and non-GAAP net earnings per ADS attributable to ordinary shareholders decreased 9.7% and 10.4% over the prior-year quarter to RMB1.28 billion ($177.80 million) and RMB1.21, respectively.
For the quarter ending June 30, 2024, LI’s revenue is expected to increase 17.2% year-over-year to $4.65 billion. Its EPS for the same quarter is expected to decrease 46.2% year-over-year to $0.19.
LI’s POWR Ratings reflect this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Value. Within the Auto & Vehicle Manufacturers industry, LI is ranked #33 out of 52 stocks. To see LI’s rating for Growth, Momentum, Stability, Sentiment, and Quality click here.
The Case for Rivian Automotive, Inc. Stock
Rivian Automotive, Inc. (RIVN) designs, develops, manufactures, and sells electric vehicles and accessories. The company offers consumer vehicles, including a two-row, five-passenger pickup truck under the R1T brand, a three-row, seven-passenger sport utility vehicle under the R1S name.
RIVN’s stock has declined 56.2% year-to-date to close the last trading session at $10.27. Its average analyst price target of $14.05 indicates a 31.3% upside potential.
RIVN’s Total Assets grew at a CAGR of 53.9% over the past three years.
In terms of forward EV/Sales, RIVN is trading at 1.49x, 21.1% higher than the industry average of 1.23x. Similarly, its forward Price/Sales is trading at 2.09x, 136.9% higher than the 0.88x industry average.
RIVN’s 0.29x trailing-12-month asset turnover ratio is 70.5% lower than the 0.99x industry average. Its trailing-12-month gross profit margin of negative 40.63% is compared with the industry average of 36.78%. Its trailing-12-month EBIT margin of negative 116.34% is compared with the industry average of 7.68%.
For the fiscal first quarter that ended on March 31, 2023, RIVN’s revenues came in at $1.20 billion. The company reported a loss from operations of $1.48 billion, representing a 3.6% widening over the prior-year quarter.
For the same quarter, its net loss attributable to common stockholders and net loss per share attributable to Class A and B common stockholders declined 7.2% and 2.1% year-over-year to $1.45 billion and $1.48, respectively.
Street expects RIVN’s revenue for the quarter ending June 30, 2024, to decrease 18.5% to $913.67 million. Its EPS for the same quarter is expected to remain negative.
RIVN’s POWR Ratings reflect its grim prospects. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability, Sentiment, and Quality and a D for Value, and Momentum. Within the same industry, it is ranked last. In addition to what we stated above, we have also rated RIVN for Growth. Get all the RIVN ratings here.
LI vs. RIVN: Which EV Stock Offers More Upside Potential?
The EV market is expected to continue to grow amid the emission control initiatives worldwide and technology advancements.
While LI could be worth adding to your watchlist, RIVN is best avoided. LI is relatively better positioned in terms of profitability, valuation and upside potential.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
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LI shares were trading at $19.56 per share on Thursday afternoon, down $1.21 (-5.83%). Year-to-date, LI has declined -47.74%, versus a 11.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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