Chinese EV Nio Is Everything Lucid Could Be

Nio (NYSE:NIO) stock has become everything Lucid Group (NASDAQ:LCID) could be. Nio stock opens for trade Feb. 7 at $24.25/share. That’s a market cap of $38 billion on what could be 2021 revenue of $5.1 billion.

A Nio (NIO) sign and logo on a tan concrete building.
Source: Sundry Photography / Shutterstock.com

In Nio’s latest quarterly report, the Chinese luxury electric maker said it delivered over 24,000 cars. It had sales of $1.34 billion. Its gross margins were over 20%.  There was a net loss of $129 million. But that was down 20% from a year earlier.

I have been skeptical about Nio. But if I had to choose between buying the American start-up, backed by the Saudis, or the “Tesla of China,” I’m choosing the Tesla (NASDAQ:TSLA).

The Bullish Case

Nio stock is cheap, compared with Lucid, Rivian (NASDAQ:RIVN) or even Tesla. You’re paying less than eight times revenue, a discount given all Chinese stocks as tensions with its government continue to grow. Of 10 Nio analysts at Tipranks, eight say buy it. Their price target of $62/share would be a 159% profit. 

Macquarie has also put out a buy rating on the stock, with a price target of $38/share. Analyst Erica Chen likes all the Chinese EV makers, including Xpeng (NASDAQ:XPEV) and Li Auto (NASDAQ:LI). Analysts are especially high on Nio’s “battery swap stations.” These eliminate a major pain point of electrics, the falling range created by an aging battery.

China’s electric car market is maturing rapidly. Almost 15% of all the cars sold there last year were electric. Among those, Nio is the fanciest.

Since a 2020 deal that affiliated it with state-owned JAC Motors, the problems of capital and production have disappeared. The local government eventually sold its stake at a profit  but the manufacturing agreement remains in place.

Nio, once associated with young capitalistic go-getters, is now more associated with middle-aged party cadres. Within China, however, luxury brands like the Nio are niche products. None of Nio’s three models is listed among the 15 top sellers.

The list is dominated by BYD Company Limited (OTCMKTS:BYDDF), which Warren Buffett of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) bought into over a decade ago.

You might also take heart from Nio’s recent lease of 200,000 square feet of office space in San Jose.  Nio’s entry into the U.S. market is looking increasingly likely.

The bear case for Nio isn’t the best-selling luxury electric in China — Tesla is. The China market is getting crowded. This is reflected in January deliveries, down almost 1,000 from December.  Government incentives are being cut and will eventually be eliminated as the market matures.

Some of Nio’s delivery shortfall may be due to supply chain constraints because China has been shutting cities down over the omicron variant of COVID-19, while the U.S. has ignored it.

The Bottom Line

As I said, given a choice between Nio and Lucid, I’m taking Nio.

If I’m to get government aid, I’d rather it be from China than Saudi Arabia. China knows how to make cars. If I’m to buy a luxury name plate that isn’t Tesla, I prefer a Nio at $90,000 to a Lucid Air at $120,000.

Assuming the computer chip shortage eases, Nio production should continue to rise.  Nio stock is also much cheaper than stock in its American counterparts.

But I don’t believe electrics will remain a niche, high-end product much longer. I don’t see an unlimited market for luxury electrics at current price points. As the mass market revved up in China, Nio lost ground. I expect that to happen here, too.

For a luxury electric maker, Nio offers investors a cheap entry point. I just don’t think the market is there. As was said a half-century ago, while many people buy Cadillacs, more of them buy Chevys.

On the date of publication, Dana Blankenhorn held no position in any stock mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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