NIO (NYSE: NIO) shares have come down a long way recently. A little under three years ago, shares in the Chinese electric vehicle (EV) manufacturer were trading above $60. Today, however, they can be snapped up for just $8.
Given this huge fall, many investors are wondering if the shares could provide big gains from here. Some investors are even wondering if the stock could provide Tesla-like returns over the next decade.
Tesla’s 25x gains
Over the last 10 years, Tesla shares have produced extraordinary returns.
A decade ago, the shares were trading for around $9 (accounting for the numerous stock splits since then). That means that a $5,000 investment back then would be worth around $123,000 today – roughly 25x the initial amount.
The thing is though, Tesla has a pretty unique story.
You see, for much of that 10-year period, Tesla was the only company with decent EVs on the road (it released its Model S in 2012 – well before rivals were getting serious about EVs).
As a result of its first-mover advantage, it was able to capture a huge amount of market share.
And it could sell its EVs at almost any price it wanted to. It didn’t have to worry about lowering its prices to compete with rivals.
Meanwhile, for much of that period, interest rates were at rock-bottom levels. As a result, buying a new EV was cheaper than today.
On top of this, in the low-interest-rate environment, investors were far more forgiving of growth companies with no profits.
A different backdrop
Now, when I look at NIO shares today, I see a very different backdrop.
For a start, the company is facing a lot of competition.
In China, it’s up against the likes of BYD, Xpeng, SAIC Motor, Volkswagen, and Tesla. And other companies’ EVs are far more popular than NIO’s.
Meanwhile, in Europe , it’s up against BMW, Mercedes-Benz, and Audi, which all have slick new EVs.
As a result of all this competition, it has had to lower its prices.
Secondly, interest rates are much higher today than they were a decade ago.
This has implications for EV affordability and sentiment towards the stock (NIO is not expected to be profitable this year or next).
The outlook
Now, the company is seeing decent revenue growth at the moment.
This year, revenue is expected to come in at around CNY 63bn versus 49.3bn last year. That would represent growth of nearly 30%.
Next year, analysts expect revenue of CNY95.5bn (growth of around 50%).
So, the growth story appears to be intact.
And with a market cap of just $13bn (versus $695bn for Tesla), there could be gains for NIO going forward.
However, I would be very surprised if the stock was to generate Tesla-like returns over the next decade.
I just don’t think the set-up is right for NIO to be able to do that.
