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Nio, Li Auto and Xpeng’s Margin And Profitability Vs Tesla

XPeng P7. Source: Flickr

Other than Tesla, Chinese EV makers such as Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) also have been getting a lot of attention lately, not only from the media but also from Wall Street.

For example, Nio’s stock has been surging and reaching multiple highs since 2020.

While Nio’s market cap is closing in on that of GM at $70 billion, it has not been all roses for the company.

For your information, Nio had its IPO completed in 2018 on the NYSE under the ticker NIO.

But in 2019, the company’s stock sank below its IPO’s price, and the stock had almost become a penny stock, trading around a dollar.

Back then, Nio was on the brink of bankruptcy.

On the contrary, Xpeng fares much better than its Chinese counterpart.

Right after its IPO in 2019, Xpeng’s stock has surged and its market cap has even exceeded that of Ford at one point.

While both Nio, Xpeng and Li Auto’s stocks have dropped considerably in recent weeks due to China’s regulatory fears and chips shortage, their values are still far ahead of their IPO values and their stocks might even be more overvalued than Tesla.

From a financial perspective, how far have Nio, Xpeng and Li Auto gone in the EV race compared to Tesla?

In this article, we are going to look at several margins of Nio, Xpeng and Li Auto, including the gross margin, vehicle margin, operating and net profit margins, and compare them with that of Tesla to see where they stand now with respect to the world’s biggest EV producer.

Let’s go take a look!

Tesla, Nio, Xpeng and Li Auto Margins and Profitability Topics

1. Gross Margin
2. Vehicle Margin
3. Operating Margin
4. Net Profit Margin
5. Conclusion

Gross Margin

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

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

* Gross margin is a measurement determined in accordance with GAAP and is calculated by the author based on the ratio of TTM gross income to TTM revenue obtained from the respective consolidated income statements.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* The calculated gross margin is inclusive of all business sectors, including automotive and non-automotive.
* All companies fiscal year begins on Jan 1 and ends on Dec 31.

The gross margin is a profitability metric that measures the mark-up of a product.

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

According to the chart above, Tesla’s gross margin averages around 20% and is the highest among all EV companies depicted in the chart.

As of fiscal 2Q 2021, Tesla’s gross margin clocked in at 22% on a TTM basis and was about 5 percentage points higher than that of Nio and Li Auto.

In fact, Tesla’s gross margin was more than double the figure of Xpeng in fiscal 2021 Q2.

While Nio, Xpeng and Li Auto were unprofitable in the past, their gross margins have slowly turned around in recent quarters and reached record highs as of 2Q 2021.

In this aspect, Nio’s gross margin clocked in at 18% on a TTM basis while Xpeng’s gross margin reaches 9% in fiscal 2021 Q2.

Similarly, Li Auto also has seen its profitability improving over the last few quarters and reported a gross margin of 18% in Q2 2021.

At these levels of gross margins, Nio and Li Auto are only slightly behind Tesla by a slim margin.

In particular, Nio’s gross margin has been fast closing in on Tesla and the company was already reporting positive gross margins after only one year of going public.

On the flipped side, Xpeng’s profitability was still far behind that of Tesla at a gross margin of only 9% in the latest quarter.

Similar to Nio, Xpeng has also been rapidly catching up with Tesla, and the company has managed to report a positive gross margin (indicated by the positive gross margin) after only 1 quarter of losses.

Keep in mind that Xpeng has completed its listing on the NYSE only recently in August 2020 while Tesla has gone public for more than a decade.

In short, Chinese EV makers such as Nio, Xpeng and Li Auto have made tremendous progress in recent years and they are already trailing Tesla in the latest quarter.

Vehicle Margin

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

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

* Vehicle margin is a measurement determined in accordance with GAAP and is calculated by the author based on the ratio of TTM vehicle gross income to TTM vehicle sales obtained from the respective consolidated income statements.
* All companies’ vehicle margin is the margin of vehicle sales, which is calculated based on revenues and cost of sales derived from new vehicle sales only.
* Tesla’s vehicle margin is calculated based on automotive sales, excluding leasing revenue, energy segment and sales that come from regulatory credits.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* All companies fiscal year begins on Jan 1 and ends on Dec 31.

In terms of vehicle margin, Tesla is again the leading EV player as of fiscal 2Q 2021 whose figure clocked in at more than 22%.

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

At more than 20% of vehicle margin, Tesla’s profitability per vehicle was far ahead that of Xpeng but was only slightly higher than that of Nio and Li Auto.

As of fiscal Q2 2021, Nio and Li Auto have both reported a vehicle margin of 19% and 18%, respectively, on a TTM basis.

In contrast, Xpeng’s vehicle margin was the lowest among all EV companies when it reported a vehicle margin figure of only 8% in fiscal 2Q 2021, less than half of what Tesla reported in the same quarter.

While Xpeng’s vehicle margin may have been considerably behind, other Chinese EV players such as Nio and Li Auto have been fast catching up with Tesla.

In just a year or two after its IPO, Nio has already managed to turn around from having a negative vehicle margin to a positive one since fiscal 2020.

Similarly, Li Auto has never had any negative vehicle margin on a TTM basis since its IPO in 2020.

Therefore, it’s only a matter of time before Nio, Li Auto and possibly Xpeng will report a vehicle margin that is on par with that of Tesla or may even exceed that of Tesla in the near future.

In short, Nio, Li Auto and Xpeng are just as competitive as Tesla when it comes to profitability per vehicle.

Operating Margin

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

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

* Operating margin is a measurement determined in accordance with GAAP and is calculated by the author based on the ratio of TTM operating income to TTM sales obtained from the respective consolidated income statements.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* All companies fiscal year begins on Jan 1 and ends on Dec 31.

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 include mainly research and development as well as SG&A.

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

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

Of all EV companies, Tesla has been the only EV maker that has a positive operating margin in most fiscal quarters while others, including Nio, Li Auto and Xpeng, are mostly in the red in all quarterly results.

As of fiscal 2Q 2021, Tesla’s operating margin reached 8% on a TTM basis, the highest among all EV companies.

In the same quarter, Xpeng’s operating margin was the lowest at -45% while Nio’s figure was -11% on a TTM basis.

Similarly, Li Auto’s operating margin was much better than its Chinese counterpart at -8% reported in fiscal Q2 2021.

At these levels of operating margins, Tesla was the only one making a profit while all Chinese EV players were incurring losses from an operational perspective.

Though most Chinese companies are having operational losses, their losses have been narrowing since fiscal 2019 and the 2Q 2021 losses were the smallest, indicating that Chinese EV players have progressed tremendously in their operating strength.

In short, Tesla is still leading the pack from an operational perspective but Chinese players are closing in.

Net Profit Margin

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

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

* Net profit margin is a measurement determined in accordance with GAAP and is calculated by the author based on the ratio of TTM net income to TTM sales obtained from the respective consolidated income statements.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* All companies fiscal year begins on Jan 1 and ends on Dec 31.

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

Again, Tesla has been the only EV company that has managed to make a profit at the net margin level according to the chart.

As of fiscal 2Q 2021, Tesla’s net margin grosses over 5% on a TTM basis, the highest figure among all EV companies.

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 2021 2Q, Xpeng’s net margin was the worst at more than -40% while Nio’s figure reaches -30% on a TTM basis.

Among all Chinese companies, Li Auto’s net loss was the least at only -5% in 2021 Q2.

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

In fact, Nio and Xpeng’s losses in fiscal 2Q 2021 were the least, indicating that they are on track to profitability if they managed to close the gap with Tesla.

Therefore, Tesla is the only EV player that is making a profit at the net margin level while Nio, Xpeng and Li Auto are still making 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, when compared to Chinese players such as Li Auto, Nio and Xpeng.

While most of them have been able to generate positive gross margins, Li Auto, Nio and Xpeng are still not profitable at the operating and net margin levels.

Despite being unprofitable, 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, both Nio and Li Auto also have been rapidly closing in on Tesla while Xpeng is still significantly far behind.

In short, Tesla is at the top of the ranking 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. Financial figures for all companies discussed above were obtained and referenced from their respective financial statements 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.

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Disclosure

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.

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