Nio Stock May Not Be Able to Match the Performance of Tesla Stock

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NIO - Nio Stock May Not Be Able to Match the Performance of Tesla Stock

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For all of the disappointments Tesla (NASDAQ:TSLA) may have dished out, the current price of Tesla stock is still well above its IPO price. If the shares of Tesla’s Chinese rival Nio (NYSE:NIO) perform even half as well as TSLA stock did shortly after Tesla went public, NIO stock could still be a very rewarding trade.

That’s a huge “if,” though, and it would be naive to think that NIO’s IPO is the beginning of a carbon copy of the Tesla story. Indeed, NIO is in a much different situation than TSLA was in. The reality is that NIO arguably has half the time that Tesla did to prove itself to a crowd that’s twice as skeptical as it was with Tesla.

Conceptual Investing

The idea of Tesla eight years ago was fascinating. Though battery-powered vehicles weren’t exactly new at the time, most of them suffered from a significant lack of coolness. The sporty Tesla Roadster – the only model it was making at the time – proved that EVs could look like more than toys and could even be high-performance machines. And, though the then-planned Model S wasn’t a sports car, it was a full-sized, luxury sedan that was going to turn heads.

It looked like the future, and giving credit where it’s due, Elon Musk has made it the future. Looking to mirror Tesla’s success, other car makers ranging from Audi to Xpeng are now manufacturing a myriad of electric vehicles.

Tesla, however, is still setting the pace, which is why investors have loved to love it.

But on a GAAP basis, even after eight years, Tesla hasn’t made one penny’s worth of profit. Its accumulated deficit is a whopping $5.8 billion and continues to get bigger every quarter.

So why have so many investors become and remained so enamored with Tesla? They’re in love with the concept, so much so that they’re willing to look past the fact that no actual profit is being made and Tesla probably won’t generate a profit anytime soon.

It’s not as if we haven’t seen the phenomenon before. Fitbit (NYSE:FIT) and GoPro (NASDAQ:GPRO) come to mind. Consumers and investors loved the idea of activity trackers and action cameras. They just didn’t love the products enough to keep buying or using them very much.

Tesla’s Headaches Aren’t Unique

Fast forward to today.

Tesla stock still has plenty of fans and followers, but after eight years of losses and the advent of several legitimate competitors (besides NIO), investors are starting to recognize that there’s a huge difference between marketability and profitability. Tesla can sell every car it produces. It just can’t sell them at a price that makes the company profitable.

Nio is in the same boat… so far anyway. Through its first six months of business, it has lost half a billion dollars, or $1.5 billion when factoring in the redemption of its convertible preferred shares. And NIO has only sold 1,600 electric vehicles so far.

But more scale will lead to better margins, and eventually, enough scale will be reached to lead the company out of the red and into the black, right? Maybe. Or maybe not. If any company was poised to prove that more scale was the trick to EV profitability, it was Tesla. If Elon Musk couldn’t make it happen, what is NIO going to be able to do differently?

Having learned the lesson from Tesla, it’s a question many current and prospective owners of NIO stock are now asking themselves and are struggling to answer. The lack of an answer is a big part of the reason that NIO stock has been cut in half from its mid-September, post-IPO peak.

Bottom Line for NIO Stock

It’s possible NIO will indeed do something differently than its EV rivals in general, and Tesla in particular, that will lead it to the promised land of profitability. Making its vehicles in China largely for the Chinese market is a huge start. Manufacturing costs are lower there, and clearly there are no hefty tariffs to pay. Never say never.

On the other hand, Strategic Wealth Partners’ President Mark Tepper’s recent assessment was poignant. He explained “With $7 million of sales and an $8 billion market cap, we can’t justify owning (NIO stock),” adding that “An unproven management team along (with) zero experience in manufacturing cars makes this an easy stock to steer clear of.”

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/nio-stock-may-not-be-able-to-match-the-performance-of-tesla-stock/.

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