It seems investors don’t know what to do about Nio (NYSE:NIO). After pushing above $30 to start the year, NIO stock briefly dipped to under $20 in late January. As I write this, the stock is now trading around the $25 mark.
That volatility could be explained by investors souring on electric vehicle (EV) stocks. Some might attribute it to a slight decline in deliveries for Nio in January. But whatever the reason may be, it’s hard not to believe that NIO stock looks attractive at a price nearly 60% below its 52-week high.
However, if you’re going to invest in NIO stock at this time, I would suggest you go in with a conservative exit plan in place. Yes, it may mean you lose some gains if the stock really takes off. But I would be paying much more attention to the ceiling than the floor.
NIO Stock: Apples and (Really Expensive) Oranges
One of General Motors’ (NYSE:GM) most popular models is the Chevy Bolt, which ranges in price from around $31,000 to $34,00. On the flip side, Nio vehicles start in the $50,000 range (without the battery).
Now, I know many bulls will correctly point out that Nio is going after a significantly different target market than GM or Ford (NYSE:F). For that matter, it’s market is even different from competitors like Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI). Both competitors are posting higher delivery numbers in Nio’s home country.
As a veteran of the marketing wars, I understand the significance of a target market. And I’m not going to debate math. Yes, Nio doesn’t have to sell as many of its premium vehicles as its lower-priced competitors. But I think that’s ignoring the basic problem Nio and NIO stock may face.
If EVs are going to become mainstream, they’re going to be at price points much closer to the Chevy Bolt — or lower. This is going to be true even if, as expected, Nio introduces a lower-priced market sometime later this year.
Playing Catch Up
Of course, as evidenced by Tesla (NASDAQ:TSLA), there’s still a significant market for premium EVs in the United States. In fact, industry experts predict that, for the next five years, EVs will cost more than traditional internal combustion vehicles. That means the market will still be dominated by individuals who aren’t prone to sticker shock. This plays to Nio’s strength.
However, it remains to be seen if Nio will be able to successfully compete with names like Tesla and Lucid Group (NASDAQ:LCID). Both have a first-mover advantage in the States, if Nio even enters the market. And remember, Tesla continues to build out its own charging network. That somewhat negates the strategic advantage for Nio and its battery-as-a-service (BaaS) program.
Finally, not to be a Debbie Downer on NIO stock, but the strength of the EV market will likely come down to the strength of the U.S. economy. Economists have differing opinions about when or if a recession will take place. However, inflation is at 7% amidst what appears to be peak employment. The economy may not be overheating, but the check engine light is certainly on.
The Bottom Line on Nio
I agree with fellow InvestorPlace contributor Will Ashworth, who wrote that NIO stock was a buy below $20. What’s more, although it’s a small sample size, it appears that buyers agree. As soon as the stock went below that mark, investors rushed in.
However, it may be some time before investors get that kind of discount. That’s why, at this time, I believe Nio is a better trade than an investment. If that means you miss out on some profits by not chasing higher prices, so be it. There are simply too many variables to project anything other than continued volatility for NIO stock.
On the date of publication, Chris Markoch did not hold (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.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
