July saw monthly electronic vehicle sales drop for the first time. The number of EVs (electric vehicles) sold worldwide came in at 128,000, down 14% from the same time last year.
According to research from Sanford C. Bernstein, the EV market in both China and US markets fell, while sales in Europe were 35% higher than at the same point last year.
Berstein remains optimistic, estimating that the global EV market will rise 48% this year, with 2.4 million to 2.9 million units sold over 2019.
For traders, the question is whether to back EV specialists like Tesla who have struggled with profitability, or traditional manufacturers who are now entering the market.
|Return on equity (TTM)||-9.54%||-433.12%||8.69%|
|1 year target est.||252.92||5.20||93.69|
Tesla, Nio & BMW share price vitals, Yahoo Finance, 9 September 2019
Tesla share price
Tesla [TSLA] managed to shift most EVs in July, with 20k units sold. Its next nearest competitor, BYD, managed to sell 16k. In the UK, Tesla’s Model 3 became the third best-selling new car in August.
While revenues are up 58% in the most recent quarter, the company has some way to go until it finally achieves profitability. Tesla has a -2.64% profit margin and a return on equity of -9.54%.
For Tesla, China is the prize. Sales of Tesla vehicles in China have jumped 43% year-on-year, mainly helped by the launch of the Model 3, and the country now accounts for 13.5% of Tesla's total revenue. A new 'gigafactory' due to open in Shanghai this year will also help it avoid tariffs in the ongoing US-China trade war.
Analysts have put a $252.92 price target on Tesla. Hitting this would represent a 12% upside. With the share price down 29% investors will need to make a decision on whether it’s worth an expensive forward P/E of 57.58x.
Nio share price
Often called the Tesla of China, Nio [NIO] has had a tricky year. The share price has plummeted over 53% as reductions in government subsidies and production issues weigh on the stock. The US-China trade war has also put the brakes on growth, with the share price reversing 12% in a single day as Chinese authorities let the yuan fall to a 10-year low against the dollar.
Adding to investor concerns was the double whammy of production issues - with less than 1000 vehicles delivered in July -, and a product recall due to battery problems.
Nio’s $3.29 billion market cap could look overvalued. Nio trades on an enterprise value/sales ratio of 4.4, while ‘profit’ comes in at -$255 million over the same time period. Right now Nio has an average price target of $5.2, which would represent a 74% upside on today’s price.
BMW share price
One of the great existential fears for the likes of Tesla and Nio, is the eventuality that established manufacturers like BMW [BMW] will someday takeover the market. The German car maker is already the fifth-biggest EV manufacturer in the world, accounting for 5% of the market. In Europe, it’s doing even better with a 13% market share.
Although BMW’s journey hasn’t been without bumps in the road. Last month, US sales decreased by 37.6% with only 1,146 EVs hitting the roads compared to 1,836 in August last year. Further bad news came last week when BMW was forced to recall its 2019 i3 and i8 models over fears they could lose propulsion.
However, BMW’s upcoming electric rollout looks promising. An all-electric Mini Cooper due out in 2020 has already notched up over 45,000 pre-orders.
For traders, BMW’s established stock could represent a more diversified, and potentially less risky, way to gain exposure to the EV sector. While the share price is down 10.6%, that is nothing compared to Nio and Tesla. The stock also carries an 8.6x price-to-earnings multiple - cheaper than Tesla - and offers a healthy forward dividend yield of 5.62%.