Demand in the electric vehicles (EV) market has been resilient so far this year despite macroeconomic headwinds. However, the margins of EV makers are under pressure due to increased competition. While the long-term growth potential of the EV market seems attractive due to the growing adoption of EVs and government incentives, automakers might face short-term headwinds due to high interest rates and intense rivalry. With this backdrop in mind, we used TipRanks’ Stock Comparison Tool to place Nio (NYSE:NIO), Tesla (NASDAQ:TSLA), and BYD (OTCMKTS:BYDDY) (BYDDF) against each other to find the most attractive EV stock as per Wall Street analysts.
Macro pressures, intense competition in the Chinese EV market, and price cuts weighed on Nio’s performance in the first half of the year.
Nio reported a larger-than-anticipated loss per share in the second quarter due to a 15% drop in revenue and higher operating expenses. However, the company is optimistic about its business in the second half of the year. It expects Q3 2023 deliveries in the range of 55,000 to 57,000 EVs, reflecting growth of 74% to 80.3% compared to the prior-year quarter.
Nio delivered 19,329 vehicles in August, which increased 81% year-over-year but lagged July deliveries. Meanwhile, the company recently unveiled its first smartphone that is designed to use with its EVs. The move is expected to deepen customer engagement.
Is NIO Stock Expected to Rise?
Last week, Morgan Stanley analyst Tim Hsiao reiterated a Buy rating on Nio stock with a price target of $18.70. Commenting on the recently unveiled NT2.0 EC6 (EC6 built on Nio’s latest technology platform), the analyst said that given the EC6’s unique model proposition, some investors see this upgrade as a “sideshow rather than the main event.”
Given such low expectations, Hsiao contends that it would be an upside surprise if the company could bring the monthly run rate of the EC6 back to the previous peak of 3,000 per month compared to the cumulative 2,100 year-to-date sales. “With its portfolio upgrade accomplished, translating the sales leads/ store traffic into transactions appears the prime concern now,” said Hsiao.
With six Buys and four Holds, Wall Street has a Moderate Buy consensus rating on Nio. The average price target of $14.24 implies nearly 67% upside potential. Nio’s U.S.-listed shares have declined 12.5% so far this year.
Tesla stock has rallied 99% so far this year. However, the impact of continued price cuts on the company’s margins has sparked concerns among several analysts.
CEO Elon Musk aggressively slashed prices to spur volumes amid growing competition in the EV space and macro pressures. This hurt the company’s profitability, with the second-quarter operating margin shrinking 493 basis points year-over-year to 9.6%. Nonetheless, Musk has shrugged off the concerns about short-term headwinds and expressed confidence in the company’s long-term growth potential, especially vehicle autonomy.
Is TSLA a Good Stock to Buy?
Last week, Goldman Sachs analyst Mark Delaney lowered his 2023 and 2024 EPS estimates, citing lower average selling prices (ASPs) and auto gross margin, excluding credit assumptions.
The analyst lowered his Q3 2023 volume estimate to 460,000 to reflect lower demand for Model S and Model X and the impact of the refreshed Model 3 version (Highland), which is now being sold in Europe and China.
That said, he expects deliveries to rebound to 494,000 in Q4 2023, driven by the Highland roll out, and improved Model S and X volumes following the significant price cuts announced recently.
While Delaney is positive about Tesla’s leadership position in the EV space and its long-term growth potential, he reiterated a Hold rating on the stock with a price target of $275 to reflect intermediate-term margin pressure. He sees the possibility of Tesla further lowering its prices in 2024, which would offset the EPS benefit from cost reductions.
Wall Street has a Moderate Buy consensus rating on TSLA stock based on 11 Buys, 12 Holds, and four Sells. At $273.33, the average price target suggests 11.6% upside potential.
BYD (OTCMKTS:BYDDY) (BYDDF)
China-based EV maker BYD, which has Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) as one of its shareholders, delivered stellar results in the first half of 2023, even as competition heats up in the world’s largest EV market.
The company’s net earnings surged 205% to RMB 10.95 billion in the first half of 2023, driven by about 73% rise in revenue. Further, the company delivered 274,386 new energy vehicles (NEVs) in August, reflecting an increase of 4.7% from July and a 57% year-over-year increase.
It is worth noting that BYD is growing its business beyond China as well. In August, the company’s exports increased to 25,023 units from 18,169 in July and 10,536 in June. Overall, with several new models and capacity expansion, BYD is well-positioned to bolster its position in the EV market.
Is BYD a Good Stock to Buy Now?
In early September, Bernstein analyst Eunice Lee initiated coverage of BYD with a Buy rating and a price target of HK$359. Lee anticipates the company to grow at a compound annual growth rate (CAGR) of approximately 33% through 2025, surpassing the growth rates of both China and the global EV market.
Lee expects BYD to expand its market share in China in the short term by addressing the untapped mass market. Additionally, Lee noted that the company has recently gained momentum in the premium segment with its Denza brand.
The analyst also sees significant opportunities in the international markets in the medium term. She highlighted that the company is gaining market share abroad by leveraging the cost advantages it has gained domestically and its competitive pricing for EVs.
Overall, BYDDY stock has a Moderate Buy consensus rating based on 1 Buy recommendation. The average price target of $40 implies 27% upside. BYDDY shares have advanced by 22.1% so far in 2023.
Wall Street is cautiously optimistic about all the three EV makers discussed here due to near-term headwinds. Several analysts see the pullback in Nio stock as a good opportunity to gain sizeable returns over the long term. As per TipRanks’ Smart Score System, Nio has a smart score of nine out of 10, indicating that the stock has the capacity to outperform the broader market over the long term.