There was a time when I traded Tesla (NASDAQ:TSLA) indirectly by using Nio (NYSE:NIO). Of late that hasn’t played out quite the same, but mostly because of what Tesla did. Its stock action has been something fantastic, so it stole the show. But even though NIO stock is lagging the Tesla price action, the fundamental thesis is still bullish.
In fact, over the past two years, NIO has climbed more than 2,500%, while TSLA has jumped more than 1,700%. Investors in both are ecstatic and they most definitely are in the game still.
When it comes to electric vehicles, consensus is that they will replace the internal combustion engine (ICE). While I think that the EV market has a future, I don’t believe it will be the ICE killer.
At least not with the current battery technology that we have. We just don’t have enough of those to sustain production for 80 million new EVs a year. That’s roughly how many vehicles produced in the world every year. However, don’t let this opinion take away from the potential upside production in EVs.
In the meantime, the electrification process continues with this serious contender tech. Within the cohort, there’s room for all the providers to prosper. Speed to market matters in the early stages, and the newcomers are playing catch-up. Nio is part of the leader pack, so it is in great shape. Management has delivered on incredible growth rates with reasonable financial metrics.
NIO stock has appreciated more than 2500% in two years, yet maintains a price-to-sale ratio of 15x. This is half that of Tesla just for a rough gauge of sanity.
Nio Stock Is in the Leader Pack
Of all the newcomers, this is the best of the rest. Lucid’s (NASDAQ:LCID) stock recently lurched on headlines. And it has its mega-fans, including those who call it the “Tesla killer.”
Nio fans should take offense to such a statement. Before Lucid can take on Tesla as the champ, it has to earn the opportunity. Contenders have to climb the ranks by beating at least the No. 2, which is undoubtedly Nio. LCID is even still miles away from that. Because at full capacity, Lucid won’t be able to match half of Nio’s current production.
As long as the stock market is bullish, NIO stock is a solid investment. However, in the short term, there are some important levels to recognize.
Lately, NIO faced sharp resistance going into $43 per share. If the bulls can rise above it, they can shoot for $50 one more time. Conversely, the price action suggests that there are buyers lurking below $38 per share.
Nio Stock Is In Good Shape
This is a good scenario for NIO fans to be in. Knowing that there is support below, they can concentrate on the upside price action.
However, it cannot rally in a vacuum, so it will still need the help of the indices. This is where the wrinkle comes in for this week because of a couple of binary events. First, today the Federal Reserve will tell us about the potential taper. Then, on Friday, we have a jobs report, which always draws a lot of investor attention as well.
Temporary disruptions in the upside trajectory of the indices will also cause NIO stock to suffer. Therefore, regardless of how much conviction you have in the company’s prospects, I suggest tempering your enthusiasm for now.
Investors would be wise to not take full positions. Managing the risk is essential to long-term success with NIO.
All indices broke records this week, so this is never an ideal time to go all-in into anything. Nevertheless, NIO stock is bullish, so investors should look for opportunistic entry levels. If for whatever reason it crashes, it would make for a fantastic entry point below $33 per share.
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.
