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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 record highs since 2020.

While Nio’s market cap is fast 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 only at a dollar.

Back then, Nio was nearly 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 the respective market cap has even exceeded that of Ford at one point.

Despite the record prices in the U.S. stock exchanges, Nio, Xpeng and Li Auto’s stock prices have plunged considerably in recent weeks, driven by a host of issues, including China’s regulatory fears, microchip crisis as well as supply chain problems.

While there might be a series of bad news lately, that doesn’t mean that the Chinese EV stocks will not rise again in the foreseeable future and they probably will, given the popularity of these EV companies.

Therefore, in this article, we are going to look at and compare several margins of these EV players, including that from Tesla and Chinese EV companies, to see which one of them makes better profits and therefore, warrant 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.

What I really want to see here is how far Nio, Xpeng and Li Auto have gone in the EV race with respect to Tesla.

Without further ado, 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 presented on a TTM basis.
* 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.

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 makers and thereby, is the most profitable EV company.

As of fiscal 3Q 2021, Tesla’s gross margin clocked in at 23% while Nio and Li Auto reported a gross margin of 19% and 20%, respectively, on a TTM basis.

At the bottom of the ranking is Xpeng whose gross margin came in at only 12% as of Q3 2021.

While Nio, Xpeng and Li Auto had been unprofitable in the past, their gross margins have slowly turned around and reached record highs as of 3Q 2021.

In this aspect, Nio’s gross margin has grown the most while Xpeng’s gross margin has turned around from unprofitable to profitable in the latest quarter.

Similarly, Li Auto reported a gross margin of 20% and is the best among the Chinese automobile companies.

At these levels of gross margins, Nio and Li Auto are only slightly behind 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.

On the flipped side, Xpeng’s profitability was still far behind that of Tesla as well as other Chinese EV makers at a gross margin of only 12% in the latest quarter.

Similar to Nio, Xpeng also has been rapidly catching up with Tesla, and the company has managed to report a positive gross profit after having only 1 quarter of gross loss.

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

Therefore, it took Tesla a decade to get to where it is now.

In short, Chinese EV makers such as Nio, Xpeng and Li Auto are rising fast and it seems that they may even surpass Tesla in the foreseeable future.

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 presented on a TTM basis.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* All companies’ vehicle margin is the margin of vehicle sales, which is calculated based on revenues and cost of sales recognized 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.
* 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 3Q 2021 whose figure clocked in at more than 24%.

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

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

As of fiscal Q3 2021, Nio and Li Auto have both reported a vehicle margin of 19.2% and 18.9%, respectively, on a TTM basis.

In contrast, Xpeng’s vehicle margin was the lowest among all EV companies, reportedly at only 11% in fiscal 3Q 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

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

* Operating margin is a measurement determined in accordance with GAAP and is presented on a TTM basis.
* 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 the respective EV companies.

Of all EV companies, Tesla has been the only EV maker with 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 3Q 2021, Tesla’s operating margin reached nearly 10% on a TTM basis, the highest among all EV companies.

In the same quarter, Xpeng’s operating margin was the lowest at -34.5% while Nio’s figure came in at -9% on a TTM basis.

While Li Auto’s operating margin was also in the red, it was on the cusp of producing profitability as the number clocked at only -5.5% as of fiscal 3Q 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 Q3 2021, their losses have been narrowing since fiscal 2019.

Moreover, the 3Q 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

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

* Net profit margin is a measurement determined in accordance with GAAP and is presented on a TTM basis.
* 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 3Q 2021, Tesla’s net margin grossed over 7% 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 3Q, Xpeng’s net margin was one of the worst at -29% while Nio’s figure reaches -30% on a TTM basis.

Among all Chinese companies, Li Auto’s net loss was the least at only -2.5% in 2021 Q3.

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 3Q 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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{ 1 comment… add one }
  • Denis Tossan December 10, 2021, 10:19 pm

    Excellent work

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