To Appreciate Nio, You Must Think Like a Gearhead

Recently, Chinese electric vehicle maker Nio (NYSE:NIO) made some news but for the wrong reasons. After getting off to a blistering lead in the second half of the year, not even the best of positive news could effectively mitigate the volatility of Nio stock. Between July 10 through July 17, shares dropped 26% in the markets.

Image of Nio (NIO) logo branded on the exterior of a corporate building.

Source: Sundry Photography /

In my opinion, Nio stock isn’t done bleeding. I can easily picture a scenario where the equity falls firmly into single-digit-price territory. As many other analysts have pointed out, the EV space is getting crowded. To no surprise, Tesla (NASDAQ:TSLA) has firmly established itself as the dominant force. Seemingly, everybody else is fighting for the crumbs.

Given the highly stressed political and economic environment, Wall Street isn’t looking for crumbs. They want to see a substantive justification for the recent premium in Nio stock. Nevertheless, I think this could be a great opportunity for those with a long-term outlook.

While I could get into a huge discussion about the fundamentals, I’ll let my InvestorPlace colleagues cover that. For the purposes of this article, we’re going to make sure that we’re not missing the forest for the trees. In other words, Nio is a car company and they make brilliant cars.

But to appreciate this simple but groundbreaking catalyst, let’s set the proper framework.

Nio Stock Is an Evolution of the Chinese Economic Machine

I love German people. Aside from their warm and friendly nature, along with their incredible contributions to world peace, Germans are renowned for their efficiency and results-oriented nature. Indeed, these traits are so common in German society and business practices that they’re not really stereotypes but are “factual-types.”

Some of the most important global contributions to the arts and sciences have come from Germans, including Ludwig van Beethoven, Alexander von Humboldt, and Martin Lawrence.

Now, I’m always amazed at how accurately an automotive brand represents its national identity. For instance, Ferrari (NYSE:RACE) is sensual, Toyota (NYSE:TM) is reliable, and General Motors (NYSE:GM) is the most improved.

On the other hand, German car brands like Mercedes-Benz, BMW, and Porsche represent both precision and passion. I’ve had the great privilege of owning and driving several German cars and if maintenance costs were no issue, I’d go Teutonic every time.

A major reason why the automotive world finds itself staring at German brake lights is that they strive for the contradiction. Hence, a top-of-the-line Mercedes will evoke the beauty of Beethoven, the acumen of Humboldt, and the personality of Lawrence.

Contrast this with the Chinese automotive industry. Due to the complexities of the internal combustion engine, Chinese cars have consistently failed to capture the international imagination. Frankly, other nations can make their own cheap and soulless cars.

Still, Chinese automakers persisted until they got (stole) a bright idea – why not change the platform entirely? This is where the story of Nio stock begins. Because with NIO, it’s no longer about participating but rather competing.

And this narrative geographically starts in … you guessed it, Germany.

Conquering the “Green Hell”

Centered in an otherwise quiet and idyllic town is a place where pretense goes to die. If a performance car wishes to even be considered among the automotive pantheon, it must first conquer the Nürburgring.

Consisting of 13 miles of dips, dives, and blind corners, the Nürburgring is the world’s longest racetrack. Dubbed “The Green Hell” by former Formula 1 world champion Jackie Stewart, the infamous circuit comprises every test imaginable of man and machine. If a driver or the target vehicle has any flaws, it will be mercilessly exposed.

Much of this stems from the dynamics of the race course. For example, the difference between the highest and lowest point of the circuit is 985 feet. Often, cars go airborne over the severest altitude shifts, requiring a car to have mercurial balance.

Again, everything that you can test in a car – straight-line speed, acceleration, cornering ability, durability – is all available at the Ring.

So, it’s truly a momentous event when an upstart is competitive at this course. Even more so for Nio stock, the underlying company’s flagship EP9 supercar set then record-breaking lap times.

Granted, this occurred in 2017. However, I bring this up because I don’t think most non-gearhead investors appreciate NIO’s achievement. For once, a Chinese production car put to shame the best that Germany (or anyone) had to offer … in Germany!

From a business perspective, the blistering times at the Ring prove that the Chinese – with the transition to EVs – can go toe-to-toe with anyone in the automotive arena. And that’s the narrative bulls need to focus on regarding Nio stock.

Eyes on the Prize

Previously, where I got Nio stock wrong was over-analyzing either the fundamentals or the technicals. Of course, you still need to be careful here. No matter how bullish you are, you can’t ignore the immediate threat of competition and saturation.

But in looking at NIO from a bird’s eye view, I can see that I was drawn more to the noise than the substance. By that, I mean the company has already achieved what was previously a pipe dream. Through a change of platform – as well as some brilliant engineering, let’s give credit where it’s due – a Chinese car company has made its rivals look in the mirror.

And with the pandemic’s disruption to the traditional global auto industry, this platform shift couldn’t have been more fortuitous. Thus, you may want to wait a bit for Nio stock to hit an ideal price point. But when it does, you should consider taking a bite.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

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