Nio Stock Is the Next Tulip Bubble of the 21st Century

Advertisement

InvestorPlace technology wonk Dana Blankenhorn recently stated that Nio (NYSE:NIO) and Nio stock are likely to be the next great tulip bubble of the 21st century. 

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.
Source: Andy Feng / Shutterstock.com

If you bought Nio stock in its September 2018 initial public offering at $6.26 a share and are still holding, my colleague was speaking directly to you.

While I don’t necessarily agree with his opinions about electric vehicles and the time it will take for total adoption, I get where he’s coming from.

The move from point A — internal combustion engines — to point B — EVs — is not going to happen over five, even 10 years. It’s going to take a couple of decades, at least. 

However, as Malcolm Gladwell would say, we’re eventually going to hit a tipping point, and I believe that will be sooner than we think.

Here’s why I feel this way. 

Nio Stock and the Future

Blankenhorn makes some obvious points about Nio’s nosebleed valuation. Comments that can’t be easily dismissed just because you want the good times to continue rolling.

As I wrote last month, this is tulip territory. Nio should not be worth more than General Motors (NYSE:GM), which has a market cap of $80 billion and a new autonomous driving partner in Microsoft (NASDAQ:MSFT),” Dana wrote on Jan. 22.

“The same is true across the electric car space. XPeng (NYSE:XPEV) isn’t worth $38 billion. Li Auto (NASDAQ:LI) isn’t worth $32 billion. American start-ups like Workhorse Group (NASDAQ:WKHS), Lordstown Motors (NASDAQ:RIDE) and Fisker (NYSE:FSR) aren’t worth their respective prices — $2.75 billion and $4.16 billion — either.”

Listen, I think that GM will be a major player in electric — both for personal vehicles and commercial — so there’s no doubt that GM’s future market capitalization is likely to be much higher than it is today. Perhaps even higher than Nio’s and the rest of the Chinese EV mafia. 

But, just as EVs aren’t going to suddenly replace ICE vehicles in the near term, Nio is delivering the goods, while GM Chief Executive Officer Mary Barra is merely faking it until she makes it.

The last time I looked, investors paid more for actual results and less for mere talk. And at the moment, Barra’s $1 billion investment in its Ingersoll, Ontario, plant to build BrightDrop electric delivery vans is only a hope and a prayer. 

The proof will be in the pudding.

The Early Days of the Automobile

I can remember reading about the good old days of breweries in the 1800s. In 1870, according to the United States Brewers Association, there were 3,286 breweries in America. By 1934, the number of breweries had dropped to 756. 

However, over those 64 years, the number of barrels produced increased by 471% to 37.7 million from 6.6 million. 

The same thing can be said about the car companies before Tesla and other EV makers came on to the stage. Fewer companies like GM were producing more of the cars. A virtual monopoly existed. Innovation wasn’t a priority. Profits were. 

Now, let’s consider the automotive industry at the turn of the 20th century. 

According to History.com, there were 30 manufacturers in America in 1899. By 1909, that number had mushroomed to over 500 companies, including Ford (NYSE:F) and GM.

My colleague would argue that the same thing will happen with EVs over the next decade. And we know how that story ends—the same way the rise of the U.S. breweries did in the late 1800s and early 1900s.

The number of active automobile manufacturers dropped from 253 in 1908 to only 44 in 1929, with about 80 percent of the industry’s output accounted for by Ford, General Motors, and Chrysler, formed from Maxwell in 1925 by Walter P. Chrysler,” History.com reports.

“Most of the remaining independents were wiped out in the Great Depression, with Nash, Hudson, Studebaker, and Packard hanging on only to collapse in the post-World War II period.”

The Bottom Line

I’ve said on several occasions that I believe Nio stock is an excellent long-turn buy, despite what the naysayers believe. Ultimately, I could be proven wrong. 

However, like the winnowing of the automobile industry in the early 1900s, I believe that the lack of innovation and scale killed many of the wannabe’s.

Is Nio such a beast? I don’t believe so. I guess we’ll find out.    

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.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/nio-stock-is-the-next-tulip-bubble-of-the-21st-century/.

©2024 InvestorPlace Media, LLC