As China’s consumer and internet sectors have emerged in recent years, becoming viable investment themes along the way, plenty of comparisons have been drawn to U.S. companies. Indeed, China has its share of Amazon’s and Google’s of China.
Controversial electric car manufacturer Nio Inc. (NYSE:NIO) is aiming to be the Tesla Inc (NASDAQ:TSLA) of China. As investors in the U.S. well know, Tesla is no stranger to controversy and volatility. Still, Elon Musk’s company has been a long-term win for investors that have had the chops to ride out that volatility and the Tesla founder’s Twitter shenanigans.
Having gone public last September, NIO stock is still new, but NIO stock is also rapidly checking the Tesla boxes of controversy and volatility. Earlier this month, NIO stock traded over $10. On Friday, March 22, NIO stock resided around $5.00 (at this writing).
That means NIO stocks is trading below its September initial public offering (IPO) price of $6.25. At the end of February, NIO had an $8 billion market value. It will be lucky to be above $6 billion at the end of March.
NIO founder and CEO William Li has not been shy about competing with Tesla, even calling his company a “Tesla killer.” Still, the Chinese company has a ways to go to truly rival Tesla.
“To be sure, Nio produced just 10,000 cars last year. While Tesla does not disclose unit sales in China, it brought in $1.75 billion in revenue from the country in 2019, or about 8% of its global total. Eight percent of Tesla’s global deliveries works out to nearly 20,000 units, assuming the same proportion of revenue to deliveries,” according to Business Insider.
Earlier this month, NIO stock was battered after the company reported a wider-than-expected fourth-quarter loss. NIO said it lost $511.5 million, or 49 cents a share in the fourth quarter, well above analysts’ estimate of a loss of 32 cents per share.
NIO stock has been careening lower since then and the company is now facing a spate of shareholder law suits. Shareholder law suits often do not amount to much, but they can thorns in the side of smaller growth companies, of which NIO is one. As was reported by InvestorPlace earlier this month, some of the charges and language being levied against NIO in these suits are typically hard for judges and juries to define.
Data support the notion that global electric vehicle (EV) demand is surging and China is a major driver of that growth. Currently, China is the fourth-largest EV market in the world and is poised to take the top spot sometime in the next several years.
“Over 1 million electric cars were sold in 2017 — a new record — with more than half of global sales in China,” according to the International Energy Agency.
That is an obvious, long-term fundamental factor in favor of NIO stock, assuming the company can move past near-term headwinds.
“The number of electric cars on the road reaches 125 million by 2030 under the IEA’s New Policies Scenario. With rising ambitions to meet climate goals and other sustainability targets, as in the EV30@30 Scenario, the number of electric cars on the road could be as high as 220 million in 2030,” according to IEA.
Other obvious headwinds for NIO stock include the company becoming profitable (getting a handle on when that will happen is difficult) and meeting production targets. In the fourth quarter, NIO produced 8,069 of its ES8 vehicle, compared with 4,206 vehicles in the third quarter.
“Deliveries of the ES8 reached 7,980 in the fourth quarter, compared with 3,268 vehicles delivered in the third quarter,” according to the company.
The bottom line is that NIO stock may one day join the ranks of storied, disruptive companies, but the near-term outlook is cloudy, indicating investors can probably wait for better pricing to become available on NIO stock.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.