It’s interesting how recommending certain stocks almost makes me feel like a cult member sometimes. Or at least, that’s the perception among certain skeptics. Equally interesting is how two of the stocks that fit this description happen to be in the electric-vehicle niche: Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) stock.
I don’t believe that buying EV stocks means you’re necessarily making a political statement. But with Tesla, you’ve got to believe not only in the company but also the eccentric, opinionated leader of that company.
Nio stock, in contrast, requires an almost cult-like level of faith simply due to its horrendous price action: check the chart on practically any time frame and you’ll see what I’m talking about. Are there reasons, then, to buy, hold, or even look in the general direction of NIO shares at this point?
Learn to Accept Volatility in NIO
I’ll just start off with a warning: NIO is for small portfolio positions only. Unlike TSLA, Ford (NYSE:F), or General Motors (NYSE:GM), there’s actually a fair possibility that the Nio stock price could go to zero. In that sense, I almost treat it like Bitcoin or a lottery ticket.
This year serves as an instructive microcosm of NIO’s propensity for volatility: in 2019, the share price has risen above $10 and threatened to touch $1. Trade war notwithstanding, I’m fairly certain you won’t see your grandfather’s Ford and General Motors shares move that much percentage wise in a full decade.
Nearly every sizable price move in Nio stock has been directly related to the number of vehicle sales. Let’s take a trip down memory lane and see how this played out.
In January, Nio delivered 1,805 vehicles and the shareholders were happy. A month later, the company reported 811 vehicles (no, that’s not a misprint). Naturally, traders punished the stock that month.
The share price peaked in March, a month when Nio reported 1,373 vehicle deliveries. This represented a month-over-month increase of 69.3%, but the jubilation was short-lived. The roller-coaster ride repeated itself later in the year: 837 vehicles delivered in July, 1,943 in August. You really couldn’t blame stockholders for jumping ship if they were getting seasick.
The Ride Gets Smoother
Fast-forward to October and we got a nice Halloween surprise: 2,526 vehicles delivered that month, representing a 25.1% month-over-month increase. By now, you should be expecting a horrible number for the following month, but Nio’s deliveries held steady in November at 2,528.
Granted, that’s only a two-vehicle increase, but I’m willing to adopt a “flat is good” stance after a year of disappointments. I’m not ready to unfurl the “Mission Accomplished” banner just yet. But evidently, Nio founder and CEO William Li wasn’t afraid to pat himself on the back:
Our strong sales performance was also attributable to the competitiveness of our ES6 among all premium electric SUVs and the passionate endorsement by our existing users… As we continue to build more cost-effective NIO Spaces and improve the performance of the existing ones, we are confident in our deliveries going forward.
Li also commented that “By the end of November, NIO and our partners successfully opened 37 NIO Spaces in total,” indicating that this is a company in expansion mode. That’s all fine and good, but what I’m looking for in 2020 from Nio is contraction, not expansion. I’d like to see a year or more of cost cutting as the company struggles to shake off its reputation for rapid cash burn.
The Takeaway for Nio Stock
It’s okay to celebrate flatness for a month, but NIO stock investors will undoubtedly insist on seeing consistent month-over-month vehicle-delivery growth in the new year — and the new decade, for that matter. In the meantime, I’ll stand by Nio for now. It’s not a cult or a religion, but the company could certainly use our prayers.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.