The electric vehicle (EV) industry is forecast to grow at an annual rate of 21.1% in the next decade. This massive growth will be supported by favorable government policies including subsidies and grants as well as economies of scale and massive institutional investments.
The Global X Autonomous & Electric Vehicles ETF (DRIV) has more than doubled in the last year and is up 18.4% year to date, easily outpacing the S&P 500 which has gained 40% since June 2020.
The EV industry has attracted multiple players due to its rapidly expanding market and here we compare two players in this space that are Nikola (NKLA) and Arrival (ARVL) to see which is a better stock right now.
Nikola stock is down 73% in the last year
While most EV stocks have crushed the broader markets, shares of Nikola are down 73% in the last year. This decline was primarily driven by a short-seller report that accused Nikola of misleading investors and exaggerating its progress with regards to technological developments of its EVs.
Nikola is a pre-revenue company and reported an operating loss of $120.6 million in Q1 of 2021. Analysts expect deliveries to start in the second half of 2021 allowing it to generate sales of $19.3 million this year. Wall Street expects revenue to rise to $222 million in 2022. Its loss per share stood at $0.14 which was significantly lower than the loss of $0.27 per share forecast by Wall Street.
In May 2021, Nikola signed an LOI (letter of intent) with Total Transportation Services where the two companies will partner to accelerate the use of zero-emission trucks at the Port of Los Angeles. This collaboration will allow Nikola to trial the company’s Tre BEV (battery-electric vehicle) as an alternative mode of transportation at the LA port.
Nikola stock is valued at a market cap of $6.2 billion indicating a forward price to 2022 sales multiple of 28x which is steep.
Arrival stock is down 18% from all-time highs
Arrival is an EV company that focuses on the production of commercial vehicles such as vans and buses. It has operations in regions including the U.S., Europe, Israel, Russia, and the U.K.
The stock went public on the NASDAQ this March 24 and raised $660 million in gross proceeds. It ended Q1 with a cash balance of $630 million. Arrival forecasts Q1 EBITDA loss at $33 million, compared to its prior-year loss of $17 million. Similar to Nikola, Arrival is also a pre-revenue company and its stock is down 18% from record highs.
Investors should note that the Arrival is backed by several investors including automobile giants such as Kia Motors and Hyundai. Another major investor in Arrival is United Parcel Service (UPS) which has ordered 10,000 vehicle units with the option of adding another 10,000 units to the former’s order book. Arrival confirmed these orders should generate over a billion dollars in sales.
In May 2021, Arrival announced a partnership with Uber (UBER) where the two companies will collaborate to create an affordable ride-hailing EV. The Arrival Car is scheduled to begin production in the second half of 2023.
Arrival expects sales of $1 billion in 2022 and its top-line might touch $5 billion in 2023. Given its market cap of $1.4 billion, Arrival is trading at a price to sales multiple of less than 12x.
The final takeaway
The two companies discussed here are yet to generate any sales which make it difficult to predict future performance. However based on estimates, Arrival stock is trading at a lower valuation making it a better bet right now. Further, Wall Street expects Arrival stock to gain 32.4% in the next year according to average estimates. Comparatively, Nikola stock is trading at a discount of just 4% to analyst estimates.
NKLA shares were unchanged in premarket trading Wednesday. Year-to-date, NKLA has gained 2.29%, versus a 13.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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