A five-year stock chart for NIO (NYSE: NIO) looks like a white-knuckle ride. At $9, the shares are basically back where they were in 2018 when the company went public. However, during that time, they’ve traded as high as $62.
So, if I’d invested £1,000 in NIO at its IPO, I’d be sitting on about £965 today. However, a similar investment in Tesla when the firm debuted on the public market back in 2010 would now be worth around £145,000!
The Chinese electric vehicle (EV) manufacturer is often compared to its larger US rival. Indeed, it has been dubbed ‘The Tesla of China’.
So, could buying NIO shares at $9 now give me a chance to secure Tesla-esque returns one day?
Immense growth potential
Make no mistake about it, the EV market opportunity in China is massive. After all, Tesla didn’t build a huge gigafactory in Shanghai for no reason. This plant in China’s biggest city produced some 710,865 vehicles in 2022 (around 54% of all Tesla cars sold).
In total, there were nearly 6m EVs sold in the country last year — over half of all global sales. And that figure is projected to reach 15m by 2030, according to the Society of Automotive Engineering of China.
For context, NIO delivered 122,486 vehicles in 2022, a 34% increase on the previous year. So the potential growth runway here is very long.
Of course, just because the firm is growing into a large and expanding market doesn’t make it a no-brainer investment. It faces intense competition from legacy carmakers, both domestic and international, and from a whole host of EV start-ups.
Price wars and innovation
One common consequence of intense competition is lower prices. And that’s what we’ve been seeing since Tesla slashed prices of its cars in January. Many carmakers followed suit, and many analysts see this as the start of an EV price war.
Lower prices generally put pressure on margins, which isn’t so bad if you’re Tesla. The EV giant is profitable so can afford to give up a bit of margin to stoke demand. But it’s not great for NIO, which is still loss-making with a $2.1bn net loss last year.
Now, it should be noted that much of this was due to the huge investments the company is making in innovative technologies, such as battery-swapping stations. These allow NIO customers to swap a depleted battery for a full one in as little as five minutes.
It expects to have 1,700 of these locations in China this year, and then a further 1,000 outside of its home market by 2025. This is a costly undertaking, so a price war is the last thing the firm needs.
Is NIO the next Tesla?
So, the fact that NIO stock is at $9 doesn’t make it an automatic buy. The share price could head lower if the firm can’t start demonstrating a clear path towards profitability.
After all, Tesla stock only really took off once the firm proved itself consistently profitable. Until NIO can do likewise, I doubt its shares will generate Tesla-esque returns.
That said, I like how the firm continues to differentiate itself from its rivals through technological innovation. I’m going to keep the shares on my watchlist for now.
