NIO) stock enchanted U.S. investors this year. As investors have scrambled to find “the next Tesla (NASDAQ:TSLA),” shares in Nio have skyrocketed 415%. But there’s one problem:” data-reactid=”12″>Nio (NYSE:NIO) stock enchanted U.S. investors this year. As investors have scrambled to find “the next Tesla (NASDAQ:TSLA),” shares in Nio have skyrocketed 415%. But there’s one problem:
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Nio isn’t Tesla.
Instead, Nio (known as Wèilái in China) faces far stiffer competition than Tesla ever did. With at least 14 other electric vehicle manufacturers in China, it will take far more than wishful thinking for Nio shareholders to win.
InvestorPlace – Stock Market News, Stock Advice & Trading Tips” data-reactid=”27″>InvestorPlace – Stock Market News, Stock Advice & Trading Tips
Nio Stock: Fighting for Chinese Market Share
Don’t get me wrong. I love the electric vehicle space.
25% per year where winners will generate 1,000%-type returns for smart investors. And the Chinese automotive industry today looks much like America’s booming one of the 1950s when the number of U.S. registered cars doubled.
27 major auto companies fold. The list includes famous names like AMC, to stranger ones like the Aurora, named by some auto historians as “the ugliest car ever.”
Today, Nio faces a similar landscape.
91 Chinese car brands with more than 1,000 sales in 2019. As the No. 62 brand in China (that’s not a misprint), Nio is sandwiched by No. 61 Qorus and No. 63 Oushan Cos, brands barely known outside China.
decent reviews. Nio also managed to grow sales by 12,000 units in 2019, representing a 158% increase.
But will Nio win? That depends on changing Chinese customer tastes, something far harder to predict.
The Chinese Auto Market: Ready for a Shakeout
fallen to just eight. Including foreign ones, American consumers now buy only 34 different car brands.
earned its cost of capital over the past decade.” data-reactid=”40″>Returns in the industry are also meager. No major car manufacturer has earned its cost of capital over the past decade.
20% or more in China. Even major players like Leopaard Motors and Huansu saw sales plummet 60% as customers shifted attention to other companies. (At its peak, Huansu sold almost 270,000 cars annually). That long list of 91 Chinese car brands will certainly dwindle over the next several years.
In other words, Chinese car buyers have a lot of choices and not all car brands will survive.
highest chances of success.” data-reactid=”43″>That’s the reason why, even in a great industry, I will only pick the companies with the highest chances of success.
What About Nio?
Nio stock fans like to think of Wèilái as “the next Tesla.”
It’s not.
Want proof? Let’s compare Nio in 2019 to Tesla in 2014. That’s the year TSLA sold 22,000 electric vehicles, roughly the same number that Nio did in 2019. But that’s where the similarities end.
nine-month backlog. Demand was so extreme that websites popped up so Tesla buyers could ask each other where they were in line. Nio, however, struggled to fill its order books during the coronavirus pandemic, something Tesla hasn’t had trouble with.
DMLRY) and Li Auto (NASDAQ:LI). Nio also contends with BYD (OTCMKTS:BYDDF), the 800-pound gorilla of the Chinese EV world. Founded in 2003, the Warren Buffett-backed company has become the No. 15 largest car brand in China. In April alone, BYD sold 12,262 plug-in EVs.” data-reactid=”50″>Competition: Nio counts at least 14 competitors in the electric SUV space, including SAIC, Audi, Mercedes Benz (OTCMKTS:DMLRY) and Li Auto (NASDAQ:LI). Nio also contends with BYD (OTCMKTS:BYDDF), the 800-pound gorilla of the Chinese EV world. Founded in 2003, the Warren Buffett-backed company has become the No. 15 largest car brand in China. In April alone, BYD sold 12,262 plug-in EVs.
Taken together, this suggests “Wèilái” fails to capture the Chinese consumer the same way that Tesla did in 2014.
Does Nio Have a Secret Sauce?
LVMUY), the company that owns Louis Vuitton, Hennessey, and other high-end brands, is worth $241 billion. Nio reaching that valuation means a 10x gain for investors.” data-reactid=”59″>And success as a lifestyle brand would certainly bring riches to investors. LVMH (OTCMKTS:LVMUY), the company that owns Louis Vuitton, Hennessey, and other high-end brands, is worth $241 billion. Nio reaching that valuation means a 10x gain for investors.
But investors should remember that these are tall mountains to climb.
just 186 miles on a single charge (vs. Tesla’s Model X’s range of 320-350 miles)
Can Nio Succeed?
Certainly. Imagine a world where $52,000 “Wèilái” SUVs trundle down U.S. streets. One where American and European consumers eschew Teslas, BMWs, and Audis in favor of a better, faster, cheaper, more desirable Chinese import.
Can you imagine that?
F), so it needs global growth to push its stock up another 10x.” data-reactid=”66″>Because that’s what it would take for Nio to become the next Tesla: worldwide popularity. (Tesla Model 3 is the second-most popular EV in China). The company is already worth as much as Ford Motor (NYSE:F), so it needs global growth to push its stock up another 10x.
WKHS), Nikola (NASDAQ:NKLA), or Li Auto that might.” data-reactid=”67″>But suppose you have trouble imagining Nio shifting 500,000 “Wèilái” units worldwide every year. In that case, you’re better off finding another EV company like Workhorse (NASDAQ:WKHS), Nikola (NASDAQ:NKLA), or Li Auto that might.
The Bottom Line
I know how to play). But if you’re looking for 10x-100x returns in the Chinese electric vehicle market, then pause a moment.” data-reactid=”70″>Whether Nio stock rises or falls 10% today or tomorrow is a technician’s game (and one that I know how to play). But if you’re looking for 10x-100x returns in the Chinese electric vehicle market, then pause a moment.
The next Tesla won’t just dominate the Chinese EV market. It will have to dominate the world.
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