Is Nio Stock Above the Electric Vehicle Investment Madness?

The world of electric vehicle stocks is increasingly wild. Tesla (NASDAQ:TSLA) used to be the hot topic among investors in this space. However, Nio (NYSE:NIO) stock has since stolen much of Tesla’s glory. Add to that a slew of special-purpose acquisition companies quickly enabling other players in the EV space — an increasingly popular trend — and the EV stock insanity is not likely to stop anytime soon.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.

Source: Andy Feng /

Almost any headline can send one of these stocks either soaring or tumbling. But while there’s plenty of hype to go around, not all of these investments are equally appealing. This reality has driven some investors to question whether Nio stock is still a buy.

Over the past five days, the stock has tumbled more than 15%. But it had some up moments too — including temporary boosts from strong sales numbers and an analyst upgrade.

The most recent cause of pain? UBS analyst Paul Gong stated that he feels competitor XPeng (NYSE:XPEV) is still the leader in autonomous vehicle initiatives (another unique facet of Nio’s business).

That’s a pretty massive tumble in just a few days. But to widen your perspective a bit, the so-called “Tesla of China” has climbed an astronomical 1,146.51% year to date. That’s despite novel coronavirus woes at the start of 2020.

In the grand scheme of things, the 15% ding isn’t quite as insane as you might think. But is it a buying opportunity?

There are a few aspects behind Nio that helps set it apart from other companies in the EV crowd, but also a few unique risks. Let’s take a look at these to help inform your decision.

Why Nio Stock Still Shines

The core investment thesis behind Nio is quite simple. The purchase of electric vehicles is increasingly popular around the world. As a Chinese company in this space, Nio taps into a market that many other players have yet to penetrate more broadly. And as more people in China (the country with the world’s largest population) buy cars, more will likely purchase an electric vehicle. (Deloitte estimates that China will encompass 49% of the world’s EV market in 2030). As such, Nio’s vehicles are increasingly in demand, and that makes the stock a strong long-term play on the EV trend.

This basic thesis is backed by strong earnings results in its most recent quarter. As InvestorPlace Market Analyst Luke Lango reports: “Deliveries rose 154% year-over-year to record-high levels. Average sales price on those vehicles rose 2%. Total revenues rose nearly 160% year-over-year, also to a record-high.”

Things get even spicier for Nio’s long-term prospects if you consider Lango’s faith in the company’s ability to expand globally. Not only would it be a leader in China, but it could easily tap into other markets, while others struggle to gain footing in China.

All of these are elements that separate Nio from the other trending EV plays like Fisker (NYSE:FSR), just to name an example. John Rosevear of the Motley Fool expands upon this distinction, stating that “it’s hardly a start-up. NIO is a real company with real products, money in the bank, and real sales. As we learned on Tuesday, those sales are still growing quickly.”

But Some Investors Still Worry

However, while there’s plenty of reason for optimism toward Nio, there’s sill plenty of reason for caution too. One of the primary concerns many investors have is that Nio is a China-based company. InvestorPlace Markets Analyst Thomas Yeung summarizes this concern succinctly:

China has produced some stunning fraud cases over the years … These fraudulent companies all sprouted financial figures that looked “too-good-to-be-true.” Company size and pedigree don’t prevent fraud either.

Thomas gives investors some tips for helping identify if Nio is a fraud, but only time will tell the full story. The “conservative investors” that Thomas mentions aren’t the only ones who are skeptical either. Consider that while some analysts tout the company’s promising fundamentals, they also indicate that from a technical perspective, Nio stock isn’t a buy after its massive leap this year.

The Bottom Line

Ultimately, whether Nio stock is a buy on this dip depends on a few things.

First, how much faith do you have in its legitimacy despite the connotations Chinese stocks generally face? Plenty of investors were burned earlier this year by Luckin Coffee’s (OTCMKTS:LKNCY) fraud scandal. Do you think Nio will suffer the same fate? Likewise, do you think it’s overbought at its current levels? Any 1,000%+ climb is impressive — how much higher can it go in the months ahead?

On the other hand, if you believe in the company’s long-term case and you’re one of the many investors who thinks the stock will keep running higher, then the recent dip in Nio could be an ideal opportunity.

One thing is seemingly guaranteed in the years ahead. More people will buy electric vehicles and Chinese consumers are bound to be leaders in this market.

On the date of publication, the author responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media,

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