Despite the obvious uncertainties involving the present pandemic, several publicly traded companies have at least enjoyed some positive sentiment, including Chinese electric vehicle maker Nio (NYSE:NIO). However, one sector that has been consistently ugly is oil. Seemingly, it has a one-way ticket to perdition, which doesn’t necessarily bode well for Nio stock.
After all, one of the biggest factors for consumers in deciding whether to go the electric route is cost savings. This decision process was much easier several years ago when oil prices kept climbing to new heights. However, with “black gold” now trading hands at rock-bottom levels, the incentive to purchase EVs diminishes.
If that wasn’t bad enough for Nio stock, the situation doesn’t appear to have a favorable resolution in sight. According to the Wall Street Journal, Saudi Arabia is prepared to flood the world with cheap oil thanks to a massive surge in production.
Though some analysts seemed optimistic that Saudi Arabia would back down from its price war with Russia, that ship has probably sailed. Admittedly, it’s unlikely that the Saudis can continue pressing their battle of the wills against the more insulated Russian economy, but we may witness further price erosion before that reconciliation occurs.
In the meantime, the so-called pain at the pump is becoming a far less taxing experience. Again, that’s not a tailwind for Nio stock, nor for other EV makers like Tesla (NASDAQ:TSLA).
Although the headline narrative doesn’t look great, I wouldn’t read too much into it. Even if oil prices dropped to single digits, it probably wouldn’t do much for traditional automakers. If people don’t want to — or can’t — drive, they won’t.
Nio Stock Is a Direct Play on Convenience
Let’s take the above example even further. Suppose gasoline prices dropped to zero: Would that move the needle for traditional automakers?
At first glance, you might think yes. Indeed, more than a few Americans will get out to experience cost-free driving. But soon, a stark reality will hit them. There is far more involved in running a fossil-fueled car than filling it up with gas.
When state after state began issuing mandatory shelter-in-place orders, many people initially worried about a transportation infrastructure freeze. Fortunately, the issuing state governments considered gas stations and car repair shops as essential services. Theoretically, that leeway allows drivers mobility.
Yet in this pandemic, broader infrastructures have been limited or compromised. This may cause some people to extend their service intervals, perhaps longer than they would like. In this situation, companies like Nio and Tesla have an easy, organic marketing opportunity: EVs are much easier to maintain.
Primarily, because EV engines are sealed, you can kiss expensive oil changes goodbye. Additionally, due to EVs having fewer moving parts, the components that require lubrication don’t have to be maintained as frequently as their fossil-fueled counterparts.
In any situation, less maintenance requirements are always positive. Like everyone says, time is money — and traditional cars require both for proper operation. But in a time of crisis, the asset of having fewer things to worry about is worth its weight in gold.
In a true lockdown, you don’t want to be stuck needing an oil change.
Don’t Forget the Longer-Term Picture
In prior articles, I’ve mentioned the concept of immediacy bias; that is, our current perceptions seem more intense, perhaps more relevant than prior observations. In other words, we’re tempted to view this coronavirus crisis as worse than anything else we’ve experienced.
I want to remind readers that a little over a decade ago, the U.S. suffered an H1N1 epidemic which infected millions of Americans, killing as many as 17,000, according to a Reuters report. Further, we went through a prolonged recession following the 2008 financial collapse.
If we want to go further back, we survived the horrors of the Sept. 11, 2001 attack and the uncertainty it brought. When pushed against the wall, Americans always come back swinging. I have confidence we’ll see the same fighting spirit regarding this outbreak.
With this in mind, don’t overlook the bigger picture for Nio stock. Near the end of 2019, auto industry experts anticipated strong years ahead. Part of the reason is that advancing technologies and increased scale will drive EV battery costs lower. At some point, we should expect EVs to be cheaper than their traditional counterparts.
Finally, who knows what’s going to happen with the crazy oil war. With EVs, you take many variables out of the equation. That’s great for solving a calculus problem. It’s also very helpful for the consumer.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.