Why NIO Stock Is a Better and Safer Investment Than Lucid Motors

As growth-oriented stocks sold off starting in February due to the market risk-off sentiment and investors’ rotation to value plays, NIO stock wasn't spared. NIO stock lost nearly 50 percent of its value from the peak it hit in February until mid-May. Since then, the stock has recovered 38 percent. Given the stock’s volatile ride, investors want to know if NIO stock is a good investment.

One of the most-awaited SPAC mergers in the EV space finally happened and Lucid Motors started trading on July 26 under the ticker symbol "LCID." Investors want to know how NIO stock compares to Lucid and which makes more investment sense.

After recouping an impressive 70 percent of its losses in almost one and a half months ending in June, NIO stock has lost momentum again. The stock has been trading sideways for quite some time now. One of the questions on everybody’s mind is, will NIO go up? The answer lies in the reason behind the recent weakness. China’s regulatory investigation into ride-hailing giant DiDi and its potential fallout on NIO has been one of the major reasons for the stock’s weakness.

However, any negative fallout on NIO stock from this particular event isn't likely. Most of the developments coming out of the company lately have been positive. NIO's June deliveries were also impressive and hit a monthly record. NIO has been delivering over and above its guidance. Its expansion into foreign markets is another underappreciated aspect. The market should take note of these developments and reflect them in NIO's stock price, which should help it regain previous heights.

Wall Street analysts have been positive on NIO stock too. Among the 17 analysts covering NIO stock, 12 have buy ratings and five have hold ratings for the stock. Their consensus target price of $57.6 also implies a potential upside of 33 percent from the current market price.

Recently, the stock has been upgraded and many analysts raised its target price. On July 9, HSBC upgraded NIO from hold to buy and increased its target price to $69 from $54. On June 8, BOCOM International initiated coverage on NIO stock with a buy rating and a target price of $57. On June 1, Citi analyst Jeff Chung upgraded the stock from neutral to buy with a target price of $58.3.

There are some similarities between NIO and Lucid Motors. Both of the companies are targeting the premium end of the market. However, down the line, Lucid also plans to offer more affordable and budget models. This strategy has worked well for Tesla and NIO but only time will tell how it pans out for Lucid.

In the EV space, Lucid Air and NIO’s ET7 are competitors. NIO ET7 is bigger than Lucid Air in length, width, and height. Lucid Air can go from 0–60 miles per hour in 2.5 seconds, while NIO ET7 can accelerate from 0–62 miles per hour in 3.9 seconds. NIO’s ET7 will be the longest range EV in the world with a 150-kilowatt hour (kWh) solid-state battery pack. In comparison, Lucid Air’s battery capacity is 113 kWh. NIO ET7 can offer a range of over 621 miles, while the Lucid Air Grand Touring’s projected EPA estimated range is 517 miles. NIO’s battery capability puts it slightly ahead of Lucid Air.

To determine whether NIO or LCID is the better EV stock, we need to see the growth prospects, execution potential, and valuation. As far as the growth potential is concerned, NIO has already shown its commitment to growth through back-to-back delivery records. NIO's international expansion marks its next step towards growth. Recently, NIO entered into an agreement with JAC to increase the annual capacity to 240,000 cars from 100,000 cars annually. NIO posted gross profits for the first time in 2020. Lucid Motors is still a pre-revenue stage company with a great concept but no vehicles commercially available right now. While Lucid’s forecasts for growth and profitability are encouraging, we should take them with a large grain of salt.

Many EV SPAC stocks have been hit by reality hard after going public. Romeo Power expected its revenue for the year to be 70 percent below what it forecasted. Canoo also told investors that it was scaling back numerous key aspects of its business strategy laid out in its investment pitch. Lordstown Motors sees its capital expenses through the end of 2022 to be more than double the amount projected last year.

Based on NIO’s enterprise value and analysts’ estimate regarding its 2022 and 2023 revenues, it's trading at EV-to-revenue multiples of 8.1x and 6.7x for 2022 and 2023, respectively. Based on Lucid’s EV of $57 billion, its own revenue forecasts for 2022 and 2023 are $2.2 billion and $5.5 billion, respectively. These figures imply EV-to-revenue multiples of 15.5x and 7.8x for 2022 and 2023, respectively. Even before delivering anything to the market, Lucid is trading at a premium multiple to NIO.

NIO has proven itself through continuous execution, while Lucid has yet to pass that test. Based on all the above-mentioned factors, NIO stock seems to be a far better and safer bet compared to LCID.