Nio (NYSE:NIO) has become, by any conventional tech trading terms, a bargain. At its opening price Nov. 11 of $1.90 per share, it trades at just twice its annual sales. It continues to spend money on research — over $500 million in the last year. Plus, deliveries jumped 25% in October to 2,526.
Since that announcement on Nov. 4, the stock is up over 10%. The market capitalization remains just under $2 billion.
Despite the good news I wouldn’t take this stock on a bet, nor in payment of a debt.
The cavalry is not coming.
China’s industrial policy is modeled on that of South Korea.
As Joe Studwell wrote in How Asia Works, China heavily subsidizes industries early in their development, then focuses on companies which prove internationally competitive. It’s now at the end of that road with electric cars and removing subsidies quickly.
Nio never played the subsidy game and never tried to expand beyond China. Founder and CEO Li Bin styles himself the “Elon Musk of China,” but he made his money with Bitauto (NYSE:BITA), an automobile sales site.
He’s no Musk. Bin is a product of China’s go-go 2010’s stock market. He used that as a springboard to take Nio public in the U.S. in September 2018. The first trade went off at $11.80 per share.
Since then it’s been all downhill. Nio doesn’t follow the government line. China prefers companies work together to set global standards. It likes BYD Company (OTCMKTS:BYDDF), which began life as a battery maker and drew an investment from Warren Buffett of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B).
Nio focuses on the high end of the Chinese market. Vehicles aren’t sold in dealerships, but in Nio Houses, advertised as “a joyful lifestyle beyond the car.” Nio introduces buyers to a fast consumer lifestyle with easy battery swaps and coffee bars in big cities.
The vehicles have have some design elements in common with Tesla (NASDAQ:TSLA), but the Chinese company doesn’t own its own factory. Instead it relies on state-owned JAC Motors to build cars to order.
Nio can design a fast car. Its EP9 has set track records in Germany. But the EP9 is not street legal in the U.S. You can’t buy it.
A Cautionary Tale
Li Bin has flown too high.
China wants electric car companies that sell in volume and bring technology with them. The country has welcomed Tesla, whose Shanghai Gigafactory is about to start turning out cars by the thousands, at a price competitive with other Chinese cars.
Bin, meanwhile, counts his sales by the hundreds.
China is happy to brag on manufacturers who bring something unique to the market. But what many Americans consider great news, Nio’s agreement to share self-driving technology with Intel’s (NASDAQ:INTC) Mobileye unit, is not good news. Those headlines sent the shares up 37% at one point, but it’s a sign of Nio’s weakness, not its strength.
The Bottom Line on Nio Stock
Nio is a stock for traders and plungers, not investors.
At a time when the Chinese government is emphasizing discipline, in Hong Kong and throughout the country, Nio stands out like a nail on a smooth floor.
I suspect that, at some point, Nio is going to be sold for its intellectual property. Its posters and cars may become collector’s items in late 21st century America. I won’t be around long enough to find out.
Nio stock is a great story, but a bad investment.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.