Tesla vs NIO stock: which EV company would I buy?

EV shares have suffered in the past month, and NIO stock and Tesla are two main examples. Would I buy either of these shares?

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The share prices of both Tesla (NASDAQ: TSLA) and NIO (NYSE: NIO) have struggled over the past few months. Indeed, NIO stock has sunk around 27% over the past month and is down 57% over the past year. Tesla stock has similarly fallen over 20% in the past month yet is still up around 12% over the past year. But following these dips, should I be buying either of these EV shares.

Tesla continues to dominate the market

Tesla has managed to dominate the EV market over the past few years and is still viewed as the current market leader. This is represented in the company’s share price, which has soared nearly 1,800% in the last five years.  However, there are a few reasons why the shares have fallen recently. For example, there was the broad tech sell-off in the Nasdaq, which dragged Tesla down with it. Secondly, Elon Musk recently told investors that Tesla would not launch any new model vehicles in 2022. This was disappointing for investors, as it may mean growth slowing down.

I also worry about the competitive landscape in the current EV market, which includes new market players such as Rivian and Lucid Motors, and traditional automotive companies like Volkswagen and Toyota.

Even so, there are plenty of positives around the shares. For example, due to its market-leading position, Tesla is likely to profit from the increasing shift into electric cars. Further, largely due to cost reductions, the company has managed to increase its profit margins, and this seems likely to improve further. These positives are not quite enough to tempt be into buying Tesla stock, however.

NIO stock: is the sell-off overdone?

There have been several reasons for investor worries around NIO. For example, as a Chinese company, there are worries that the tensions between China and the US will have negative consequences. This is because Chinese regulators have recently cracked down on the country’s companies listing in the US, and at worst, this may lead to the delisting of NIO.  

Further, recent levels of inflation have also had an incredibly bad effect on growth stocks. This is due to the threat of far higher interest rates, which will make it more expensive for these companies to fund growth. NIO stock has suffered in particular as the EV maker is still unprofitable.

Despite this, there are signs that the sell-off may be overdone. For example, demand for NIO’s products continues to be strong and deliveries in January 2022 managed to reach 9,652. This is a 33.6% year-on-year rise. Recently, the company also launched the ET5, which is a mid-size premium smart saloon, with deliveries expected in September 2022. The fact that new products are being released helps differentiate NIO from Tesla and is one reason I think it’s a better buy for me.

I also like that NIO stock is a cheaper alternative to Tesla. In fact, it trades on a price-to-sales ratio of around 8. In comparison, Tesla has a far higher P/S ratio of around 16. This indicates that either Tesla is far too expensive, or NIO stock is too cheap. I think it’s a mixture of the two. Therefore, I’m very tempted to buy NIO, while I’m also willing to leave Tesla on the sidelines.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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