Could buying NIO shares at $7 be like investing in Tesla in 2010?

NIO shares have struggled badly recently. But could this now be a once-in-a-lifetime opportunity to buy the stock for Tesla-eque returns?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Back view of blue NIO EP9 electric vehicle

Image source: Sam Robson, The Motley Fool UK

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I look at the long-term chart for NIO (NYSE: NIO) shares, I’m taken back to my childhood. In particular, I’m reminded of those big dipper rollercoaster rides, where an almost vertical ascent is followed by a series of stomach-churning moves on the way back down.

At $7, NIO shares are almost back where they started in September 2018 when the Chinese premium electric vehicle (EV) maker went public. However, they soared as high as $62 in 2021.

This means that if I’d invested £1,000 in NIO at its IPO, I wouldn’t have made much so far. However, the same amount invested in Tesla shares when they debuted on the Nasdaq back in 2010 would now be worth around £160,000!

In fact, due to a weakened pound, my hypothetical returns would be even greater.

NIO is often compared to its larger US rival and has even been dubbed ‘The Tesla of China’.

So, could buying NIO shares at $7 today be like investing in Tesla stock years ago?

Price wars and margins

The EV market in China has encountered some teething problems this year. Its rate of growth is slowing as dark economic clouds have descended over the Chinese economy.

More specifically, NIO has battled inflation, supply chain problems and has recently (and reluctantly) entered into the EV price war that Tesla started last year.

The price war is a tricky one because NIO can’t lower prices too much without damaging its premium brand image. Meanwhile, these issues are putting huge pressure on the loss-making company’s margins.

Created at TradingView

October deliveries

Despite these headwinds, the innovative firm continues to push ahead.

In October, it delivered 16,074 vehicles, an increase of 59.8% year on year. This means it has delivered 126,067 vehicles year to date, a 36.3% rise.

These are very encouraging numbers, though the company still isn’t expected to reach profitability anytime soon.

Massive growth market

In 2022, there were nearly 6m EVs sold in China, which represented over half of all global sales. But that figure is expected to more than double by 2030. So the potential growth runway here is very long.

Of course, carmakers (both old and new) know this and most are operating in China. Tesla already has a huge gigafactory in Shanghai, where it recently produced its two millionth vehicle. So increasing competition is an ever-present risk for NIO.

However, to stand out from the crowd, the firm has focused relentlessly on innovation, notably battery-swap stations. These allow NIO drivers to swap a depleted battery for a full one in a few minutes.

It now has 2,079 of these stations globally, with 621 of them strategically located along motorways in China.

Recently, it even released the world’s first smartphone designed for EVs. A NIO owner can use the phone to instruct the car to drive itself to their location, which is allowed in China in restricted spaces and at low speeds.

The next Tesla?

NIO recorded a net loss of $2bn last year. Looking ahead, it will have to do a better job of showing a path towards profitability.

Until it can demonstrate this, I doubt its shares will generate Tesla-like returns, even from $7.

That said, I like the firm’s innovations, so the shares remain on my watchlist.

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.

Ben McPoland has positions in Tesla. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

Here’s how I’d aim to get rich investing £89 a week in FTSE 100 shares

Putting under a hundred pounds a week into FTSE 100 shares, here's how our writer would aim to build a…

Read more »

Investing Articles

Could this beaten-down UK growth stock be the next Rolls-Royce?

Mark Hartley feels Rolls shares have had their time and are running out of steam. Now he’s searching for the…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 10% in a month! What’s gone wrong with the BAE Systems share price?

Harvey Jones suspected all was going a bit too well for the BAE Systems share price. Things went wrong immediately…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Are BT shares still a bargain after climbing 30%?

BT shares are finally showing signs of life after years in the doldrums. Harvey Jones thinks this may point to…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »