Nio, Li Auto and Xpeng Margins And Profitability Vs Tesla

XPeng P7. Source: Flickr

Apart from Tesla, other strong players in the electric vehicle (EV) space include Chinese companies such as Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI).

Among the Chinese EV players, Li Auto was the largest with a market cap of $35 billion USD as of July 2023.

On the other hand, Xpeng was the smallest at around $13 billion USD of market cap during the same period.

Nio’s market cap was slightly larger than Xpeng’s at around $17 billion USD as of July 2023.

Year to date in 2023, most Chinese EV stocks have been beaten down badly.

As such, their respective market cap was only a fraction of what Tesla’s stock was traded.

For your information, Tesla’s market cap was valued at nearly $900 billion USD as of July 2023.

While most Chinese EV stocks have been beaten down, that does not necessarily mean that they will not rise again in the foreseeable future and they probably will, given their popularity in the EV space.

Therefore, in this article, we are going to look at and compare the margins of these EV players, including that of Tesla and Chinese EV companies, to see how they have been doing with respect to each other.

The margins that we are going to look at include the gross margin, vehicle margin, operating, and net profit margins.

By the way, these are all GAAP measures and are comparable.

Without further ado, let’s start out with the topics below!

Gross Margin

Tesla, Li Auto, Nio and Xpeng’s gross margin

(click image to enlarge)

Let’s first look at the gross margins of all EV companies which are shown in the chart above.

For your information, the gross margin is a profitability metric that measures the markup of a product.

Therefore, the higher the gross margin, the more profitable the product is.

According to the chart above, Tesla’s gross margin has been rising since fiscal 2019, reaching more than 23% in the latest quarter.

For this reason, Tesla’s gross margin is the highest among all EV companies in comparison and thereby, is the most profitable compared to Chinese EV makers.

As of fiscal 1Q 2023, Tesla’s gross margin clocked at 23% while most Chinese EV companies were seemingly lagging behind except for Li Auto.

Li Auto’s gross margin has risen quite remarkably over the years and came in at 19% on a TTM basis as of 1Q 2023, the highest among all Chinese EV companies, and was only slightly behind Tesla’s.

At the bottom of the ranking is Nio whose gross margin clocked at only 8% as of Q1 2023.

On the other hand, Xpeng’s gross margin was slightly better compared to Nio’s which clocked around 10% as of 1Q 2023 on a TTM basis.

Despite being unprofitable in the past, most Chinese EV companies’ gross margins have turned around and achieved profitability over time.

For example, Nio’s gross margin has improved the most while Li Auto was already a profitable company right after the IPO.

Similarly, Xpeng’s gross margin has turned around from -5% to 10% in the latest quarter.

Among all Chinese EV automakers, Li Auto is probably the only Chinese EV that may surpass Tesla in gross margin as their results have only differed by a slim margin.

While Li Auto has been fast catching up, both Nio and Xpeng’s profitability was still far behind that of Tesla.

To make matters worse, both Nio and Xpeng have been having their gross margins tumbling in recent years.

As seen in the chart, both companies’ results had declined considerably since 2021 after achieving peak margins at that time.

Therefore, it looks like Nio and Xpeng still have some work to do.

Vehicle Margin

Tesla, Li Auto, Nio and Xpeng’s vehicle margin

(click image to enlarge)

In terms of vehicle margin, Tesla’s figure clocked at 23% as of fiscal 1Q 2023 and is leading the pack at a comfortable margin.

Additionally, Tesla is the only EV company with a vehicle margin that grossed above the 20% threshold.

At 24% of the vehicle margin, Tesla’s profitability per vehicle was far ahead of most Chinese EV makers.

For Chinese EV automakers, Li Auto and Nio both reported a vehicle margin of 19% and 11%, respectively, on a TTM basis as of 1Q 2023.

In contrast, Xpeng’s vehicle margin was among the lowest, reportedly at only 7% as of fiscal 1Q 2023, which was way below that of Tesla and its Chinese counterparts.

While Xpeng’s vehicle margin has been considerably behind, other Chinese EV players, Li Auto in particular, has been fast closing in on Tesla’s results.

For example, Li Auto’s vehicle margin was only a few percentage points behind that of Tesla as of fiscal 1Q 2023.

Therefore, I believe it’s only a matter of time before Li Auto reports a vehicle margin that is on par or may even exceed that of Tesla in the near future.

In short, some of the Chinese EV players, Li Auto in particular, are just as competitive as Tesla when it comes to profitability per vehicle.

Operating Margin

Tesla, Li Auto, Nio and Xpeng’s operating margin

(click image to enlarge)

The operating margin takes into account the operating costs in addition to the costs of revenue but before taxes and interest expenses.

The operating costs of all EV companies in discussions include research and development as well as SG&A expenses.

Research and development expenses are big with EV companies and can take up as much as 50% or even more of the total operating costs.

That said, the operating margin shown in the chart measures primarily the operating strength of the respective EV companies.

Of all the EV companies presented, Tesla seems like the only EV maker reporting positive operating margins in all fiscal quarters.

On the flipped side, Nio, Li Auto, and Xpeng have been having negative operating margins, illustrating the unprofitable nature of their operations.

As of fiscal 1Q 2023, Tesla’s operating margin reached 15% on a TTM basis, the best among all EV companies in comparison.

At the same time, all Chinese EV makers had negative operating margins.

For example, Li Auto, Nio, and Xpeng’s operating margins came in at -5%, -37%, and -40%, respectively, in the same fiscal quarter.

While all Chinese EV makers had their operating margins in the red, they have come a long way and have improved tremendously over the years.

In short, Tesla is still leading the pack from an operational perspective but Chinese EV players are fast approaching.

Net Profit Margin

Tesla, Li Auto, Nio and Xpeng’s net profit margin

(click image to enlarge)

The net profit margin shows the bottom line of all EV companies after accounting for all costs and expenses of doing business and this includes taxes and interest expenses.

Again, Tesla has been the only EV company that has managed to have a positive net profit margin according to the chart.

As of fiscal 1Q 2023, Tesla’s net margin grossed nearly 14% on a TTM basis, the highest figure among all EV companies in comparison.

On the other hand, most Chinese EV companies, including Li Auto, Nio, and Xpeng, have been reeling from losses in most quarterly results.

As of fiscal 2023 1Q, Xpeng’s net margin was one of the worst at -42% while Nio’s figure reaches -35% on a TTM basis.

Among all Chinese companies, Li Auto’s net loss was the least at only -2% as of 2023 Q1.

Although Nio and Xpeng have been incurring big net losses all these years, their losses have been getting smaller.

In fact, Nio and Xpeng’s losses in fiscal 1Q 2023 were one of the least, indicating the remarkable progress that they have made over time.

Nevertheless, Li Auto’s net margin was among the best within the Chinese pack and should be on track to net profitability in subsequent quarters provided the rate of growth can continue at the current rate.

In short, Tesla is the only EV player that is making a profit at the net level while Nio, Xpeng, and Li Auto are still having losses.

Conclusion

In conclusion, Tesla has been the only profitable EV company for all levels of margins, including gross margin, operating, and net profit margins.

In contrast, most Chinese EV players such as Nio, Xpeng, and Li Auto have been reeling from losses.

While most Chinese EV makers have reported positive gross margins, they are still unprofitable at the operating and net margin levels.

Despite incurring big losses, Chinese EV makers are fast closing the gap with Tesla, as seen in the narrowing operating and net losses that Li Auto, Nio, and Xpeng have been reporting over the years.

In terms of vehicle margins, Li Auto is rapidly approaching that of Tesla while Nio and Xpeng are still far behind.

In short, Tesla is still the king of EVs when it comes to margin and profitability as the company dominates in all levels of margins, including the gross margin, vehicle margin, operating margin, and net profit margin.

References and Credits

1. All financial figures presented in this article were obtained and referenced from the companies’ respective financial statements, SEC filings, investor update letters, earnings reports, etc, which can be obtained from the following links:

a) Tesla Investor Relations
b) NIO Investor Relations
c) Xpeng Investor Relations
d) Li Auto Investors Overview

2. Featured images in this article are used under creative commons license and sourced from the following websites: XPeng P7 and NIO ES6.

Disclosure

References and examples such as tables, charts, and diagrams are constantly reviewed to avoid errors, but we cannot warrant the full correctness of all content.

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

If you find the information in this article helpful, please consider sharing it on social media and also provide a link back to this article from any website so that more articles like this one can be created in the future.

Thank you!