Don’t come at me Nio (NYSE:NIO) bulls. I’m not writing a gloom-and-doom piece about Nio stock. As I wrote in July, I believe in the company’s solvency. And that was the main reason I was so negative about Nio in the past. In fact, you can say that I am taking the company very seriously.
Nio had a stroke of good fortune when it received $1 billion in funding from the Chinese government via the state of Hefei. And let’s be absolutely clear. Nio was hurtling towards bankruptcy before it received these funds. So it’s fair to call this a bailout.
That’s not a reason to avoid the stock. But the company can’t rely solely on good fortune. Now that it appears to be a viable company, it has to prove to investors that it can string together a series of wins. The launch of its battery-as-a-service (BaaS) initiative is a good start, as was a solid earnings report.
However, now Nio is playing on a field where investors will be asking what it can do for an encore.
A Closer Look at NIO Stock
As a sports fan, one of my least favorite activities is the “he/she is the next …” debate. To me, it always leads to a tiresome back-and-forth of unprovable opinions. And most importantly, it’s unfair to the athletes who have to live up to the comparison.
Nio has been called the “Chinese Tesla” or the “Tesla of China.” Here’s the problem. Tesla (NASDAQ:TSLA) is up over 840% on a year-over-year (YoY) basis as of this writing. And that has investors driving up the stock price of all electric vehicle stocks.
However, this is an unfair debate for one key reason. Many investors don’t view Tesla as an electric vehicle (EV) company. The true believers view Tesla as a technology company that happens to make electric cars.
For many of these investors, Tesla co-founder and chief executive officer (CEO) Elon Musk is playing chess while the rest of the world is playing checkers.
Nio makes high-end electric vehicles. It is leaning into innovation with its BaaS initiative. However, one of the consequences of being bailed out is that Nio is now effectively part of JAC Motors.
And that means, rather than being an innovative company, it will be a luxury brand for China. And as Dana Blankenhorn pointed out, its upcoming EC6 coupe will be priced higher than Tesla’s equivalent model.
What to Watch for With Nio
This is not to say that Nio is not offering investors some catalysts. Nio continues to move ahead with its plans for autonomous vehicles. Nio also has plans to expand into other areas.
Founder and CEO William Li said that the company is hoping to “begin making some preliminary attempts in some countries that are more welcome to electric vehicles” in the second half of 2021.
It’s likely that the company will attempt to start in Europe. And though Tesla has designed on entering the European market as well, Nio will need to show investors it can compete in markets outside of China.
Nio stock fell after earnings, but it appears the bulls have now consolidated and are driving the stock higher. Investors can be impressed by Nio’s 367% 12-month growth. It’s no Tesla, but it still looks overvalued, particularly for a company that has yet to turn a profit.
However proving that it can compete in this competitive sector will be Nio’s next challenge. This will be particularly true with tensions remaining high between the United States and China. For now, speculative investors may want to wait for a better price point before taking Nio stock for a test drive.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
