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NIO Stock Is as Tempting as Tesla, Dangerous as DeLorean

Concerns about fundamentals and financials beset NIO stock

By Josh Enomoto, InvestorPlace Contributor

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Nio stock price

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Even in this deflated environment, I can appreciate investors’ interest in Chinese automaker Nio (NYSE:NIO). Known colloquially as the Tesla (NASDAQ:TSLA) of China, the upstart has made significant progress over its short lifespan. Considering how high Tesla ultimately flew, speculators are hoping for an encore performance with NIO stock.

In my last write-up for the electric-vehicle specialist, I praised the company’s multiple strengths. Primarily, NIO’s ambitious drive towards artificial intelligence and autonomous-vehicle technologies is impressive. Should their progress continue unimpeded, NIO stands a great chance of cementing its presence with the likes of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Uber.

Of course, the big dogs like Toyota (NYSE:TM) and General Motors (NYSE:GM) will not make things easy for the newcomer. Therefore, I concluded that buying NIO stock carried significant longer-term risks.

A Look at NIO

That said, one look at their lineup can quickly stir the heart. The company’s flagship model is the NIO EP9. Simply put, the EP9 is drop-dead gorgeous. Honestly, it looks like something that came out of the movie Tron: Legacy.

Better yet, the electric supercar has the stats to justify its outrageous styling. From a standstill, it can accelerate to 60 mph in a blistering 2.7 seconds.

Moreover, it has a top speed of 195 mph, thanks to its massive engine that churns out 1,341 horsepower. Combined, these metrics make the EP9 the fastest electric car in the world.

If that wasn’t enough, the stock price has a previously unexpected catalyst. The bitter trade war between the U.S. and China has worried global investors for obvious reasons.

However, the anti-American sentiment in China gives the automaker an opportunity to compete against Tesla with a significant advantage.

Plus, with NIO at its current lows, contrarians are licking their lips.

NIO Is Innovative, but Unproven

So with these new talking points and developments, are they enough for me to change my mind on NIO stock? Actually, they further solidify my original argument. The Chinese automaker scores big on ambition and innovation. However, they fall short on credibility.

Now, NIO can certainly establish credibility. But the reality is that this is a very young company trying to break into a centuries-old industry. I can’t heap praise on an organization whose products have yet to be eligible for long-term, real-world testing.

When I think about NIO stock, my mind meanders to the DMC DeLorean. Like the EP9 and its stable mates, the DeLorean was a stunner. Its signature gull-wing doors remain a motif in modern exotic cars such as the Mercedes-Benz SLS AMG.

But good looks alone doesn’t build a viable enterprise. The DeLorean failed chiefly because the underlying company’s financials became a mess. Admittedly, founder John DeLorean’s arrest for smuggling cocaine didn’t help. However, the poor financials drove him to cocaine, not the other way around.

Coincidentally, a major risk to NIO stock is that the automaker is a money pit.

Another similarity between Nio and DeLorean is pricing. Originally, DeLorean wanted his cars priced at $12,000; essentially, a supercar for the lay folk. Unfortunately, the ultimate asking price ballooned to between $20,000 and $25,000. In today’s money, we’re talking roughly $58,000 to $72,000.

Interestingly, that’s around the range Nio’s ES6 SUV model occupies. A base level ES6 starts at $52,000, and goes up to $65,000 with all the bells and whistles.

Already, the upstart car manufacturer has made a mistake. When you have no proven track record, you can’t value your products in the stratosphere. This is what killed DeLorean, and it could damage the NIO stock price.

NIO Stock Remains a Gamble

The counterargument is that this is a different time and a different place. For instance, Nio’s lineup has garnered industry accolades. In contrast, the DeLorean was a heavy and underpowered lug.

Furthermore, Nio has far more financial credibility than the defunct automaker. The Chinese firm features strong revenue growth, which could help turn the organization into the black. Plus, its shares have stabilized since last October.

Still, I have one last parallel to bring to your attention. DeLorean also failed because it attempted to sell overpriced, unproven vehicles during a recession. Nio is doing the same under an international slowdown. History doesn’t repeat exactly, but ignoring it altogether is a treacherous move.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/nio-stock-tesla-delorean/.

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