Nio, Li Auto and Xpeng’s Margin 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, Nio was the largest with a market cap of $35 billion USD as of April 2022.

On the other hand, Xpeng was the smallest at around $24 billion USD of market cap during the same period.

Li Auto’s market cap was nearly the same as that of Xpeng at around $27 billion USD as of April 2022.

Year to date in 2022, 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 more than $1 trillion USD as of April 2022.

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 several margins of these EV players, including that of Tesla and Chinese EV companies, to see which one of them makes better profits and therefore, warrants a buy in terms of the stocks.

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

In addition, the comparison between Tesla and Chinese EV stocks also is meant to see how far Nio, Xpeng and Li Auto have gone in the EV race with respect to Tesla.

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

Gross Margin

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

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 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 has been rising since fiscal 2019, reaching more than 20% in the latest quarter.

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

As of fiscal 4Q 2021, Tesla’s gross margin clocked at 25% while most Chinese EV companies were seemingly lagging behind.

For example, Li Auto’s gross margin came in at 21% on a TTM basis, the highest among all Chinese EV companies.

At the bottom of the ranking is Xpeng whose gross margin clocked at only 12.5% as of Q4 2021.

Nio’s gross margin was much better compared to Xpeng and the latest figure was around 19%.

Despite being unprofitable in the past, most Chinese EV companies’ gross margins have turned around and reached record highs as of 4Q 2021.

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 12.5% in the latest quarter.

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

For perspective, Nio’s gross margin has been fast closing in on Tesla and the company was already capable of reaching a positive gross margin after only one year of going public.

While Nio was fast catching up, Xpeng’s profitability was still far behind that of Tesla and other Chinese EV makers at a gross margin of only 12% in 2021 Q4.

Despite having the lowest gross margin, Xpeng has managed to achieve a positive figure in about a year while it took Tesla more than a decade to do so.

In short, Chinese EV makers such as Nio, Xpeng and Li Auto are rising fast and it may seem like only a matter of time before they surpass Tesla in the foreseeable future.

Vehicle Margin

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

In terms of vehicle margin, Tesla is leading the pack as of fiscal 4Q 2021 whose figure clocked at 27%.

Additionally, Tesla is the only EV company with a vehicle margin that has grossed above the 25% threshold.

At more than 25% of vehicle margin, Tesla’s profitability per vehicle was far ahead of most Chinese EV makers.

As of fiscal Q4 2021, Nio and Li Auto have both reported a vehicle margin of 20% on a TTM basis.

In contrast, Xpeng’s vehicle margin was the lowest among all EV companies, reportedly at only 11.5% as of fiscal 4Q 2021, which was way below that of Tesla and other Chinese EV makers.

While Xpeng’s vehicle margin has been considerably behind, other Chinese EV players such as Nio and Li Auto have been fast approaching that of Tesla.

For example, within 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’s vehicle margin was only 5 percentage points behind that of Tesla in fiscal 3Q 2021.

Therefore, I believe it’s only a matter of time before Nio, Li Auto and possibly Xpeng will report a vehicle margin that is on par 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

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% 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 EV companies, Tesla seems like the only EV maker which reported positive operating margins in most 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 4Q 2021, Tesla’s operating margin reached a massive 12% on a TTM basis, the highest among all EV companies.

In the same quarter, Xpeng’s operating margin was the lowest at -31% while Nio’s figure came in at -12% on a TTM basis, which are far behind that of Tesla.

While Li Auto’s operating margin was also in the red, it was on the cusp of producing profitability as the latest number clocked at -4% in fiscal 4Q 2021, the lowest operating loss among all Chinese EV companies.

For this reason, Li Auto may be the only Chinese EV company that has a higher chance of making an operating profit in the near future.

Though most Chinese companies were having operational losses as of Q4 2021, their losses have been narrowing since fiscal 2019.

Moreover, the 4Q 2021 result was among the lowest in terms of operating losses, indicating that Chinese EV players have progressed tremendously over the years in their operating strengths.

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

Net Profit Margin

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

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 4Q 2021, Tesla’s net margin grossed over 10% 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 4Q, Xpeng’s net margin was one of the worst at -23% while Nio’s figure reaches -29% on a TTM basis.

Among all Chinese companies, Li Auto’s net loss was the least at only -1% as of 2021 Q4.

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 4Q 2021 were the least, indicating that they have been progressing quite well since fiscal 2019.

Nevertheless, Li Auto’s net margin was among the best in the 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 margin 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, both Nio and Li Auto also have been rapidly approaching that of Tesla while Xpeng is still significantly far behind.

In short, Tesla is still the king of EV 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.

Useful Statistics For Your Reference

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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