4 min read
This story originally appeared on StockNews
The electric vehicle industry is growing rapidly and, as such, is attracting access from established manufacturers such as China-based Geely (GELYY). But can these new entrants in general, and Geely in particular, jeopardize Tesla's (TSLA) leadership position?
One of the hottest industries to invest in right now is electric vehicles. As the globe nears clean energy generation and consumption, EV companies are poised to grow faster.
While 2020 was a breakthrough year for EV stocks, several EV companies have underperformed the market this year, allowing investors to buy growth stocks at more attractive valuations.
Here we compare two popular EV stocks. One is the market leader, Tesla (TSLA) and the other is Geely (GELYY), a company based in the country with the world's largest electric vehicle market – China.
Click here to read our electric vehicle industry report for 2021
Let's see which stock is a better EV buy right now:
Tesla continues to surprise Wall Street
In the first quarter, Tesla sales rose 74% year over year, mainly driven by a 109% increase in vehicle deliveries. Net income also rose to record highs due to regulatory credit.
In the first quarter, Tesla increased shipments of its affordable Models 3 and Y by an impressive 140% year over year to 182,338 units. However, shipments of the more expensive S and X models fell 83% to 2,030 units in the first quarter as Tesla postponed production of these vehicles and plans to launch newer versions of the models in the coming months.
Tesla reported net income of $ 438 million, or $ 0.93 per share, for the first quarter. This included a profit of $ 101 million related to the sale of Bitcoin. In addition, regulatory loan sales of $ 518 million were reported. Tesla purchased $ 1.5 billion worth of digital assets in the quarter. Without the above sales, Tesla would have posted a loss of $ 181 million in the first quarter.
Tesla has invested $ 1.35 billion and started building two new factories in Berlin and Texas. Once these projects are completed, the company should benefit from positive free cash flows over time.
Although Tesla continues to use unconventional methods to increase its bottom line, it remains one of the best stocks in the EV sector. It is on the right track to increase vehicle deliveries by more than 50% year over year in 2021. The company's management also confirmed that it has sufficient liquidity to fund its expansion plans without raising additional capital.
Geely stock is down 42% from its 52-week high
Geely is an investment holding company and operates as an automobile manufacturer in China. It designs, manufactures, markets, and sells automobiles and auto parts and related components. Geely makes sedans, wagons and sport utility cars.
Geely is an established automaker that now has its eye on the lucrative EV space. Earlier this yearChina's tech giant Baidu announced that it will partner with Geely Automobiles to make smart electric vehicles. Baidu will provide intelligent driving skills while Geely will leverage its design and manufacturing expertise.
While Tesla is increasing its return on sales at an enviable pace, Geely's sales have dropped from RMB 106.59 billion in 2018 to RMB 92 billion in 2020. The EBITDA also decreased from 17.24 billion RMB to 11.83 billion RMB during this period. Geely's EBITDA margin fell from 16.2% in 2018 to 12.8% in 2020. Geely has attributed the decline in sales to China's weak passenger car market. While the sales volume fell 10% in 2019 compared to the previous year, it fell by a further 6% in 2020. That's partly why the stock is trading 42% below its 52-week high.
The last snack
While Tesla is the largest EV manufacturer in the world, Geely is still trying to break into this emerging industry. In terms of rating, Tesla acts at one far higher multiple as Geely. For example, Tesla's trailing price for the sales multiplier is 20.5x, while Geely is valued at less than twice the trailing sales.
However, Tesla's robust sales forecast and rising profit margins can support this high valuation, making it a better investment bet right now.
TSLA shares. Since the beginning of the year, TSLA is down -5.97%, while the benchmark index S&P 500 is up 12.45% over the same period.
About the author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes on businesses, public stocks, and personal finance. His work has been published on multiple digital platforms in the US and Canada, including The Motley Fool, Finscreener, and Market Realist.
The post Tesla vs. Geely: Which Electric Vehicle Manufacturer is a Better Buy? first appeared on StockNews.com