Chronicle Journal: Finance

Workhorse Group vs. Li Auto: Which Electric Vehicle Stock is a Better Buy?

As governments worldwide transition their countries’ economies to facilitate a sustainable-energy-based future, the Electric Vehicle (EV) industry is receiving a significant boost. With the increasing demand for EVs, companies such as Workhorse (WKHS) and Li Auto (LI) are expected to gain in the coming months. But let’s find out which of these two stocks is a better buy now.

Workhorse Group, Inc. (WKHS) and Li Auto Inc. (LI) are two of the world's emerging companies in the Electric Vehicle (EV) space. WKHS is primarily a technology company that designs, develops, manufactures, and sells electrically powered medium duty trucks and unmanned aerial delivery systems in the United States. LI, through its subsidiaries, designs, develops, manufactures, and sells smart electric sport utility vehicles (SUVs) in China.

With growing interest of investors in the EV space, both WKHS and LI are expected to generate big returns in the coming months.

LI has returned 76.8% over the past three months compared to a loss by WKHS. Regarding the past month performance, WKHS is a clear winner with a 13.7% return versus LI’s 3%. But which of these stocks is a better pick now? Let's find out.

Latest Movements

WKHS announced on November 9 that it has received a purchase order for 500 of its all-electric C-1000 delivery vehicles from Pritchard Companies for its National Fleet Program. The program is being financed by Hitachi Capital America Corp. (HCA). The company had entered into strategic agreements with Hitachi America, Ltd., and HCA in August.

In October, the company submitted its formal "Type Certification" application to the Federal Aviation Administration (FAA) for its HorseFlyTM Unmanned Aerial System (UAS). WKHS received approval from New York Truck Voucher Incentive Program in October to offer monetary vouchers for its C-Series all-electric delivery vehicles in select New York State counties.

In September, LI announced a three-way strategic cooperation with NVIDIA Corporation (NVDA), and NVDA’s Chinese partner, Huizhou Desay SV Automotive. Through this strategic cooperation, LI is expected to be the first OEM equipping its vehicles with the powerful NVIDIA Orin SoC chipset. The full-size extended-range premium smart SUV is set to be launched in 2022.

Recent Financial Results

WKHS’ net sales increased to $564,707 for the third quarter ended September 30, 2020. However, the company incurred losses due to increased interest expenses. The company also had to modify its assembly process, and limit production support from third-party sources due to the pandemic.

LI’s total revenues climbed 28.9% sequentially to $369.8 million for the third quarter ended September 30, 2020. Vehicle sales revenue increased 28.4% sequentially to $363 million, and its gross profit increased 91.3% sequentially to $73.2 million, yielding a gross margin of 19.8%.

Expected Financial Performance

The market expects WKHS’ revenue and EPS to increase 6934.5% and 82.5%, respectively, over the next year.  Regarding LI, the market expects LI’s revenue and EPS to increase 93.7% and 88.9%, respectively, over the same period.

Profitability

LI’s trailing-12-month revenue of $823.86 million is much higher than WKHS’. Moreover, LI is more profitable with a gross margin of 14.7% versus WKHS’ negative value.

However, WKHS’ ROE of 831.1% compares favorably with LI’s negative value.

Valuation

In terms of trailing 12-month price/sales, WKHS is currently trading at 2331.91x, which is much more expensive than LI, which is currently trading at 9.76x. Moreover, WKHS is more expensive in terms of EV/Sales also (3599.65x versus 32.09x).

Thus, LI is the more affordable stock here.

The Winner

Both WKHS and LI are prominent companies set to gain from the EV revolution considering their market dominance and continued expansion. However, LI appears to be a better buy based on the factors discussed here. Basically, it’s a cheaper investment option to ride the EV wave.

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LI shares were trading at $31.26 per share on Wednesday afternoon, down $0.89 (-2.77%). Year-to-date, LI has gained 89.91%, versus a 16.69% rise in the benchmark S&P 500 index during the same period.



About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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