By now, everyone has at least heard of Tesla (NASDAQ:TSLA). The company is churning out thousands of electric cars per week and has finally started turning profit. But a name that many investors have been ignoring is Nio (NYSE:NIO). Nio stock went public a few months ago and has had a volatile ride since.
For some background, Nio recently began producing its first all-electric vehicle this summer, an SUV called the ES8. Nio is a Chinese company that markets and sells its vehicles in its home country. For those unaware, China is the world’s largest electric vehicle (EV) market in the world.
That’s why it’s also a big focus for Tesla, which is setting up its Gigafactory production facility (for batteries and vehicles) in Shanghai. In 2017, roughly 17% of Tesla’s revenue came from China, although that figure is likely to be significantly lower in 2018. Part of that’s due to the trade war between the U.S. and China and the latter’s 40% import tariff on U.S.-made vehicles. The larger reason for the lower percentage of revenue though is the surging production of the Model 3.
So the question still stands, which stock should investors buy?
Nio vs. Tesla Stock
Tesla is obviously years ahead of Nio in this game. It’s producing thousands of vehicles per week between the Model S, X and 3. Last quarter it turned a notable profit and it’s making some serious progress with its Autopilot autonomous driving program. Investors — bears included — would correctly argue that Tesla is the world’s EV leader.
If investors believe in the EV movement, they don’t have to choose between Tesla and Nio necessarily. It’s not a zero-sum game and in fact, both stocks can win. I would argue that as Tesla consolidates over the $360 level, that it’s flirting with a breakout to its all-time high. Some say it can quadruple in the next 10 years. Nio on the other hand could nearly double from its current price and not cause any hardship to Tesla in the process.
In the end, each stock’s performance will come down to each company’s execution.
In Nio’s case, the company recently began production. Before that, it had no revenue (no cars to sell) and plenty of losses (R&D spent on designing, prototyping and setting up shop). Last month, Nio reported its first quarterly result as a public company, reporting revenue of $214 million and a loss per share of $1.51. Last quarter, Nio produced 4,206 ES8s, with deliveries topping 3,200.
However, management said it expects to deliver 10,000 ES8 vehicles by year-end and generate revenue of $418.5 million to $436 million in the fourth quarter. Those are some really solid numbers for just getting production up and running. Consider how long it took for Tesla to build 10,000 Model 3s.
That’s not a knock on Tesla by any means, given what the company has been able to achieve. If Nio can learn from Tesla’s mistakes, it will be able to increase production and curb losses, while becoming cash-flow positive and profitable sooner than expected.
Trading Nio Stock
So long as Nio continues to increase production and revenue at a rapid pace, its share price should follow suit. Of course, the big concern here is demand. In China, demand could take a hit as competition increases, but if Nio is able to keep a steady stream of buyers on board, it should do just fine.
Nio stock has been doing pretty well lately. Since the beginning of November, shares are up 25%. Despite a big rally-and-fade, the stock is up a similar amount from the start of October, vastly outperforming the SPDR S&P 500 (NYSEARCA:SPY) and the PowerShares QQQ ETF (NASDAQ:QQQ).
Can it continue?
So long as support holds up, I believe it can. Nio stock is above both the 21-day and 50-day moving averages, as momentum has been bullish over the past few months. It’s also putting in a series of higher lows (purple arrows), something I love to see in a tough tape.
The $8 to $8.25 level could prove tough to crack for Nio stock. Above it though, not much is in its way to keep it from rising higher. If this level acts as resistance, just let Nio settle down and find support before retesting higher. Should all support fade away, the $6 lows are possible.