Investors savvy enough to have bought Tesla shares just five years ago are up around 815% today (25 March). NIO (NYSE: NIO) stock, on the other hand, has fallen 92% since hitting an all-time high of $61 in January 2021.
It’s now trading for just $4.89!
Once upon a time, NIO was dubbed the ‘Tesla of China’. Yet the market cap of its US electric vehicle (EV) peer is currently around 53 times larger.
| Market capitalisation | |
| Tesla | $535.3bn |
| NIO | $10.1bn |
So, could NIO shares produce Tesla-esque returns from today’s low price and make me rich in the process? Here are my thoughts.
Blue sky coming?
NIO was one of the first EV pioneers in China. Its Chinese name, ‘wei lai’, translates to ‘blue sky coming’.
This is symbolised in its company logo, with the semicircle at the top representing the sky and the chevron at the bottom meant to be the earth.
More generally, the image relates to the cleaner, pollution-free skies above Chinese cities that the founders envisioned the EV revolution would bring.
The firm has grown revenue rapidly over the past few years, from $720m in 2022 to $7.3bn last year. The problem is that investors haven’t seen any profits coming from that growth.
Indeed, the company revealed a staggering net loss of $2.9bn in 2023, which was a 43% increase in losses from the previous year.
Guidance for the first quarter was also weak. It expects to deliver between 31,000 and 33,000 vehicles, well below analysts’ consensus expectations.
A hurricane of headwinds
Meanwhile, the company faces many ongoing challenges. Here are just some of them:
- Domestic competition is ferocious
- International expansion is uncertain, with the EU considering tariffs on China-made EVs
- Higher interest rates mean consumer sentiment is weak
- Margins are under pressure
- Losses are mounting
- China’s economy remains fragile
NIO’s vehicle margin for Q4 of 2023 came in at 11.9% versus 20.9% in Q4 of 2021. So we can see how cost inflation and a global EV price war have take their toll on margins.
Of course, NIO isn’t alone here. Tesla’s vehicle margins have also been squeezed, narrowing from 30% in Q4 2021 to 17.1% in Q4 2023.
Yet Tesla’s scale and profitability mean it can ride out the slowdown in the EV market. Unfortunately, I don’t think NIO is as resilient.
Remember, it was bailed out in 2019 by state-owned enterprises. Before that, its stock dropped as low as $1.51. It could happen again.
A millionaire-maker stock?
Given the ongoing challenges, I’d be a very brave investor buying NIO shares today.
On the other hand, investing in stocks that seem down and out can produce the best returns. Look at Rolls-Royce, for example. Or NIO itself, which rose nearly 40-fold after it was bailed out.
If it did so again, a £25k investment would get me to a million.
Looking ahead, the company is bringing out its first mass market vehicle later this year. That could ignite top-line growth, as could licencing agreements it has signed with other car companies relating to its battery-swap stations.
Still, as things stand, I’m not convinced enough to invest. If the stock does suddenly take off like a rocket, I’ll be watching from the sidelines. I’m fine with that.
