The electric vehicle is trying to unseat the internal combustion engine (ICE) from its perch. This is the most legitimate effort for that ever. Tesla (NASDAQ:TSLA) deserves all the credit for this under the leadership of Elon Musk. The road was hard but they paved it well for others like Nio (NYSE:NIO) to stroll through. In return, Nio stock has done well for its investors.
Those who bought the pandemic dip profited as much as 3,400% at the peak. Even after the recent drops, they are still sitting on more than 2,000% of it. The outlook for the electric vehicle in general looks good. The ICE has been dominant for ever, so I won’t call it dead just yet. The transition will take years, but the major auto manufacturers have committed to flipping.
Tesla being the first mover has the advantage. NIO is a close second towing XPeng (NYSE:XPEV) behind it. They both have an early mover advantage not quite like TSLA. However, these two operate in the largest market. Also, Nio has help from the Chinese government. Therefore, my assumption is that Nio stock has a rosy future. Dips are opportunities to participate in the stock.
Most of the NIO Stock Risk Is Extrinsic
Here comes the tricky part, things aren’t this linear. There are outside factors to consider, like the stock market’s altitude for one. The indices have never been higher, so this elevates the odds of a correction. The charts are so parabolic that they are vulnerable to sharp reversions to the mean.
As long as we’ve gone without one, even a mild correction could have big negative repercussions on portfolios.
Therefore, whatever positions investors take now need to be humble. The cliche of being “cautiously optimistic” fits perfectly.
I like NIO stock long term but with near-term worries. July has not been good for the stock as it lost 20% at the lows of recently. I fielded a few questions as to the reason for the drop. Yet, not many were asking why it crashed up a few days earlier. These ebbs and flows are part of normal price action.
Don’t Blink, It Moves Fast
What raises eyebrows is the speed of it. Nio is a momentum stock, so it moves fast and either direction. It held an important neckline yesterday. I bet there will be more buyers in it if it falls into $40 per share. Those looking to get exposure can nibble. Given the outside risks, I would avoid taking full-size trades. Using options, investors can mitigate some of the risk. Otherwise they should temper their enthusiasm and resist going all in.
Overconfident fans should zoom out to a weekly time frame chart to see proper perspective. Nio stock is at extremely high altitude, therefore vulnerable. If the stock market corrects say 10%, Nio will probably fall even faster. This is not my forecast, but my cautionary note for over-zealous fans.
I started today on a positive note and I will end with that, too. Simple logic suggests that Nio is one of the three new electric vehicle companies with a chance for strong outlooks. The scorecards support my statement because they are executing well on plans. Management tripled revenues since 2019 without expanding losses. From a price-to-sales, it is in line with Tesla and 30% cheaper than XPEV.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
