Nio or XPeng: Goldman Sachs Chooses the Superior EV Stock to Buy

Business Insider

8 hours ago

Since 2009, China has held the title of the world's largest automotive market, driven by its vast population and a rapidly growing urban middle class. In 2022 alone, the country recorded 26.88 million new car sales. By the following year, domestic production surged past 31 million vehicles. So far this year, Chinese auto sales have made up 28% of the global total.
Confident Investing Starts Here:
Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions
Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter
A key driver of this growth is the rapid adoption of electric vehicles (EVs), which are claiming an ever-larger share of the market. Backed by robust government support and rising consumer demand, EV production and adoption have soared. China is now home to around 100 active EV makers, and its EV market is the largest in the world. According to Fortune Business Insights, the electric car market in China is expected to grow at a strong CAGR of approximately 18.4% through 2030.
But with this rapid expansion comes intensifying competition. The EV boom has turned the market into a fierce battleground, where price wars and shrinking margins are becoming the norm.
For investors, the rapid expansion of China's EV sector brings both opportunities and pitfalls. Goldman Sachs analyst Tina Hou is closely following the action, focusing on two of China's most prominent EV names: Nio (NYSE:NIO) and XPeng (NYSE:XPEV). Her insights aim to separate the leader from the laggard, and help investors determine which stock offers the more compelling case. Let's take a closer look.
Nio
We'll start with Nio, one of China's innovative electric car makers. Since its founding in 2014, Nio has developed a line-up of EV models, nine under its own nameplate along with additional models under the Onvo and Firefly brands. The company's vehicle lines include several sedan and SUV models, combining luxury styling, the latest EV tech, digital dashboards, and long-range battery systems.
On pricing, Nio aims to run the gamut – from low-end budget models to high-priced luxury offerings. At bottom, the company's Onvo and Firefly brands feature ticket prices as low as $16,700 for Firefly's low-cost trim, to $33,400 for the top-end Onvo model. Nio's eponymous nameplate features vehicles such as the ET5, at $41,000, the ET7, priced at $59,000, and the ET9 for $90,000. Vehicle pricing is based on battery technology and packages, vehicle trim levels, and idiosyncrasies of local region and market conditions.
Nio backs up its vehicles with a solid service network. The company pioneered EV battery swapping in China, developing a network of swapping stations where vehicle owners and drivers can pull in and replace depleted battery packages for new ones – without having to wait for recharging. The service is offered on a subscription basis, and has proven popular with Nio's customer base, as it solves two 'pains' that EV drivers frequently complain of: long battery charging times and high battery costs.
We should note here that Nio has faced headwinds in recent months. The company's stock is down 22% year-to-date, after the firm has faced difficulties hitting sales goals and has cut delivery guidance. The lowered guidance has come alongside lower delivery numbers and increased quarterly earnings losses.
On the delivery side, Nio delivered 23,900 vehicles in April of this year, for a 53% year-over-year gain; in May, that number was 23,231 vehicles, for a year-over-year gain of 13.1%. On revenue and earnings, Nio reported $1.66 billion in 1Q25, up 21.5% year-over-year but missing the forecast by $70 million. At the bottom line, Nio's non-GAAP EPS loss in Q1, of 41 cents, was 4 cents per share below the forecast; the company's net loss was 24% deeper than in the prior-year quarter.
In her write-up on Nio for Goldman, analyst Tina Hou notes that company management is actively working to improve efficiencies and mitigate losses, but has not reaped the benefits yet.
'Nio has been focusing on cost reduction through a series of cost control and efficiency improvement measures since Mar, including terminating low return projects, and integrating R&D and S&M teams to support multiple brands with a c.20% headcount reduction. By doing so, management aims to achieve 20%-25% opex optimization and profit breakeven in 4Q25… Although we believe Nio's cost reduction efforts would help improve the company's R&D and operational efficiency, we remain relatively more conservative on Nio's FY25 sales volume compared to management's target largely due to the ongoing industry competitive intensity, YTD run rate and overall demand outlook,' Hou stated.
Hou follows these comments with a Neutral (i.e., Hold) rating on NIO, along with a $3.80 price target that points toward a one-year upside of 11%. (To watch Hou's track record, click here)
This view is in line with the Street's consensus; Nio has a Hold rating, based on 11 recent reviews which include 2 to Buy, 8 to Hold, and 1 to Sell. The shares are priced at $3.42, and their $4.51 average price target suggests a ~32% gain in the next 12 months. (See NIO stock forecast)
XPeng, Inc.
Next on our list here is XPeng, a fast-growing EV maker in the Chinese market. The company is based in the southern city of Guangzhou, where it was founded in 2014. XPeng started regular vehicle production in 2019, and in recent months has seen its production and delivery numbers grow rapidly. XPeng's current success is based on a line-up of battery-powered EVs that include elegant luxury models, large SUVs, a coupe, and even an extra-large seven-seater. Customers can choose from a range of features, including luxury-styled interior finishing, long-range battery packs, flat-screen cockpits, and voice-activated driving assistance.
XPeng's vehicles are aimed at China's growing upper-middle-class demographic, a population that has the available funds to buy high-end electric vehicles and is tech-savvy enough to appreciate and use the added smart-car technology features. While the company has put a premium on high-tech features in its cars, it hasn't skimped on basic automotive technology; XPeng's cars are powered by proven electric drivetrains to provide drivers with a favorable driving experience.
To support its vehicles and customers, XPeng provides solid warranties for its vehicles and their systems, along with remote vehicle support and diagnostics, and 24/7 roadside assistance. On a more prosaic level, the company has also built up a network of 772 branded supercharging stations and 1,870 free charging stations. The network spans China, and includes 319 cities with free charging services. The company's supercharging technology includes built-in safety monitoring, to ensure that fast chargers are safe to use.
In its last reported quarter, 1Q25, XPeng reported quarterly deliveries of 94,008 vehicles, covering all models. This number was up 331% year-over-year, and reflects increasing sales success in the past year. The company's most recent delivery numbers, covering this past May, came in at 33,525 total vehicles – a figure that was up 230% year-over-year. XPeng has recorded monthly vehicle deliveries of 30,000-plus for seven consecutive months.
Looking at financial results, we find that XPeng generated $2.18 billion in revenues, in line with expectations and achieving a year-over-year gain of 141.5%. At the bottom line, XPeng recorded a net loss of 6 cents per share by non-GAAP measures – but that net loss was significantly less than had been expected, beating the forecast by 15 cents per share.
Recognizing the momentum, Goldman Sachs analyst Tina Hou sees particular strength in XPeng's ability to scale up new model launches and maintain a steady pace of innovation.
'Since 4Q24, XPeng has shown consistent improvement in its new and refreshed model launches with Mona M03 and P7+ sales volume ranking among the top 3 in their respective segment. XPeng has also stepped up on its new model launch frequency with 10 over 2024-2026, compared to only 1-2 new models each year from 2019-2023. XPeng will now introduce 10 new + refresh models each year to better compete in today's highly dynamic market environment… We are Buy-rated, as we see the result of a series of efforts coming through that has transformed the company's product and cost structure competitiveness, leading to higher visibility for sustainable sales volume growth as well as profit margin improvement going forward. XPeng is currently trading in line with historical average forward P/S multiple in the past 1 year,' the analyst opined.
That stated Buy rating is complemented by a price target of $24, suggesting a 29% potential upside for the next 12 months.
The Street, generally, likes XPEV shares, and gives the stock a Moderate Buy consensus rating based on 9 recent reviews with a breakdown of 6 Buys, 2 Holds, and 1 Sell. The stock's $18.61 selling price and $24.78 average target price together indicate room for a 33% gain in the coming year. (See XPEV stock forecast)
With the facts laid out, and the ratings and price targets compared side-to-side, it's clear that Goldman Sachs has picked out XPeng as the superior Chinese EV stock to buy.
To find good ideas for stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a tool that unites all of TipRanks' equity insights.