We’ve got approximately three-and-a-half months left in 2020. For most people, the year’s been miserable. For shareholders of Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), it’s been anything but terrible. Through Sep. 11, Nio stock is up 369.2% year to date compared to 320.7% for Tesla.
It appears that the race between the two electric vehicle makers is neck and neck. Who’ll come out on top? Nio’s got a 48.5 percentage point lead on Tesla. It’s going to be tough for the world’s largest automobile company (by market capitalization) to make up the difference.
The Tesla Shorts Continue to Bet Against It
Tesla has become the most shorted stock in the world. On Sep. 8, Benzinga reported that Tesla’s short interest was $24.3 billion, more than double Apple’s (NASDAQ:AAPL) short interest of $10.4 billion. And Apple’s the world’s second-largest short position in the world, an indication that Tesla is out on an island, well separated from any other short action.
Tesla stock has lost 25% of its value in the first half of September. Short-sellers made $7.1 billion in profits in the first four days of September trading. Since then, Tesla’s down another 11%, suggesting those betting against Elon Musk are finally making some money off this abysmal play.
Institutional Investor contributor Christine Idzelis wrote about the Tesla short in mid-August. The author quoted S3 Partners managing partner Ihor Dusaniwsky, who described the Tesla short as “‘by far the longest unprofitable short I’ve ever seen.’”
As for the losses, Dusaniwsky labeled them “‘just absurd.’”
You would think given the mark-to-market losses for Tesla bears year to date — estimated at $21 billion in August — a short squeeze would have taken place by now.
Hedge fund manager Mark Spiegel contributed to Institutional Investors’ August article about Tesla. Spiegel’s firm, Stanphyl Capital Partners, is short Tesla.
“‘It was almost anything but a short squeeze that drove this thing up,’” Spiegel says of Tesla’s jump in stock price this year. His hedge fund increased its short bet against the company after its second-quarter earnings call, he says, adding that “‘his conviction is stronger than ever.’”
I’ve been bullish about Tesla since late 2016. That conviction’s grown stronger by the year.
While having said that, the competition from relative upstarts such as Nio and long-established manufacturers such as Volkswagen (OTCMKTS:VWAGY) is only going to get more intense in 2021 and beyond.
VW’s union head believes that the company can ratchet up its global production capacity for electric vehicles to 1.5 million annually by 2023, perhaps even sooner. Of all the legacy companies, Volkswagen has moved the fastest to embrace electric vehicles.
Forget about Nio stock, Volkswagen ought to be Tesla’s much more significant concern.
Nio Down 6% in September
Through Sep. 11, Nio stock is down almost 6% on the month, compared to 4.6% for the S&P 500. So, relative to the index, it’s not doing too bad. Tesla investors would much rather be in Nio’s position halfway through the month.
Since the beginning of June, except for a couple of pullbacks, Nio’s stock’s done nothing but move higher. As long as it keeps producing substantial delivery numbers each month, I don’t see why it can’t continue moving higher.
On Sep. 3, Nio announced that its August deliveries were 3,965, 104.1% higher than in the same month a year earlier. Year to date, Nio’s delivered 21,667 vehicles, 109.9% higher than in the first eight months of 2019.
“In August, we achieved our best-ever monthly performance on both deliveries and order growth,” said William Bin Li, founder, chairman, and chief executive officer of NIO. “As we continue to improve the production capacity for all NIO products, our monthly capacity will reach 5,000 units in September to support our future deliveries.”
With the EC6 expected later this year (an excellent looking vehicle in my humble opinion), there’s no question it’s going to be an excellent alternative for Chinese buyers. And if it ever makes its way over to North America, I think it would do well here as well.
InvestorPlace’s David Moadel recently suggested that Nio’s September correction provides investors with an opportunity to get onboard its next leg up into the $20s.
“In spite of all this, the Nio stock price fell after the data [August deliveries] was released. Was this Nio’s fault in particular? Not likely. The most logical explanation is that Tesla shares were pulling back after that company’s five-for-one stock split,” Moadel wrote on Sep. 10.
“This seems to have precipitated a pullback in other electric vehicle stocks as well. So, investors shouldn’t conclude that there’s something wrong with Nio. And, this could be a perfectly buy-able dip, not unlike the one that occurred in July.”
I couldn’t agree more.
While I remain a big fan of Tesla, I don’t see it catching Nio in 2020. Nio’s momentum remains intact despite the September swoon. It’s a long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.