NIO vs. Faraday Future: Which Electric Vehicle Stock is a Better Buy?

The electric vehicle (EV) market is expanding at a solid pace, with more than 10 million EVs on the world’s roads in 2020, a 43% increase compared to 2019. This growth should accelerate in the coming years amid growing demand for low emission vehicles. Moreover, governments support through subsidies and tax rebates should boost the EV industry as well. According to Allied Market Research, the global electric vehicle market is expected to reach $802.81 billion, growing at a CAGR of 22.6% between 2020 and 2027. So, both NIO and FFIE should be able to capitalize on this growth. 

However, the EV industry came under pressure because of the semiconductors shortage. In addition, EV stocks have recently experienced a sell-off amid investors’ concerns regarding a new COVID-19 variant in South Africa.  Which is why today we're going to take a look at NIO Inc. (NIO) and Faraday Future Intelligent Electric Inc. (FFIE) to determine which EV stock is better to buy on the dip.

Founded in 2014, NIO develops, manufactures, and sells EVs in China, targeting the luxury electric SUVs segment. The company also offers an innovative subscription-based model for its batteries. Headquartered in Gardena, California, FFIE also engages in the development and selling of EVs and EV-related products in the U.S. and across the globe. 

Recent Developments 

On November 26th, NIO Inc. announced that it had entered into a strategic collaboration agreement with Royal Dutch Shell. According to the terms of the deal, both NIO and Shell will construct and operate battery charging and swapping facilities in China and EV charging stations in Europe. 

On November 10th, Faraday Future achieved the second production milestone by receiving the Certificate of Occupancy (COO) for its Hanford manufacturing plant. Matt Tall, FFIE's Vice President of Manufacturing, said, “We’re laser-focused on meeting our production milestones and getting the Hanford manufacturing plant equipped to launch the FF 91 by July 2022.” 

Recent Financial Performance 

On November 9th, NIO announced its third-quarter earnings results. In Q3, NIO's revenue rose 128% year-over-year to about $1.52 billion, beating Wall Street's revenue consensus by $50 million. The company’s vehicle sales stood at $1.34 billion, up 100.2% compared to the year-ago value. Its Net Loss decreased 42.9% year-over-year to $569.7 million in Q3. As a result, NIO’s Non-GAAP EPS has been reported at ($0.06), topping analysts’ estimates by $0.04.

The company plans to generate Q4 revenue in the range between $1.46 billion and $1.57 billion. For the fourth quarter, the analysts expect NIO's EPS to stand at ($0.31), which is a decrease compared to ($0.16) a year ago. However, an $1.54 billion average revenue projection for Q4 indicates a 49.90% growth.

Faraday Future hasn’t reported earnings for its fiscal third quarter of 2021 yet. In addition, the company has even received a notification letter from The Nasdaq Stock Market as it failed to file a 10-Q report on time. This announcement caused FFIE shares to drop by over 10% during the pre-market session. Thus, let’s take a look at the company’s S-1/A filing. The company hasn’t generated any revenues yet as it is still in the development stage. Its total operating expenses have increased 69.4% year-over-year to $26.69 million as of June 30th, 2021, primarily due to higher Research and Development expenses and higher General & Administrative costs. As a result, Faraday Future’s net loss stood 66.5% higher at $52.78 million. With gross proceeds of about $1 billion from the SPAC merger with Property Solutions Acquisition Corp., the company shouldn’t face any liquidity problems during the next 12 months considering the 1H2021 cash burn rate of $52.31 million.

Bullish‌ ‌Options‌ ‌Bets‌ ‌Placed On NIO Stock 

The options, which expire on December 17th, 2021, saw a modest call buying on Friday. The open interest for the $42.00 calls rose by 2,400 contracts to a total of 2,463 open contracts (source: barchart.com). A buyer of those calls would need the stock to rise to $44.23 by the December expiration, a gain of about 10% from NIO stock’s current price.

The Bottom Line 

I believe that NIO is a better investment than FFIE at these levels.   NIO is in a solid position to generate long-term returns because it is already a well-established player in the EV market, demonstrating double-digit revenue growth numbers. In addition, NIO's overall financials look more attractive than FFIE. Finally, options traders are making bullish bets on NIO stock’s appreciation in the coming weeks.

NIO shares were trading at $40.25 per share on Monday afternoon, up $0.26 (+0.65%). Year-to-date, NIO has declined -17.42%, versus a 25.77% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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