Over the past month alone, electric vehicle (EV) maker NIO (NYSE: NIO) has soared 44%. But the long-term picture is less attractive, with NIO stock having fallen 64% over the past five years.
Still, that sort of price volatility is not unusual when it comes to EV makers. NIO’s rival Tesla (NASDAQ: TSLA) has had its fair share of dramatic price swings over the years too. Over the past five years though, it has soared 186%.
Over the past decade, Tesla has gone up a stunning 2,462%.
But while Tesla now has a market capitalisation of $1.3trn, NIO’s is a much more modest $17bn.
Tesla sales volumes fell in the first half of this year, while NIO’s sales are growing. Could buying NIO stock for my portfolio today be similar to buying into Tesla stock a decade ago?
NIO looks a lot like Tesla used to
NIO’s sales growth reflects a number of things. One of them is the fact that its sales are currently well below Tesla’s, making it easier to report strong growth. A decade ago, Tesla was in the same position. Today though, its much larger sales base along with some self-inflicted brand image problems mean its sales volumes have been falling.
One of the reasons I do not own NIO stock is that the carmaker has not yet proven that its business model can be profitable, despite strong sales growth. That was true of Tesla a decade ago too.
Incredible stock performance
In fact, one of the drivers for Tesla stock’s outstanding performance over the past decade was that it proved it could grow sales volumes and convert those sales revenues into profit. If NIO can do the same, I think that could help NIO stock soar.
NIO’s premium positioning also reminds me of how Tesla was initially perceived, although over the years it has cut its prices and introduced models to try and appeal to different parts of the market.
A key reason for NIO stock soaring over the past month has been the unveiling of a couple of new large models. It is also aiming to appeal to different market segments, although maintaining a premium positioning.
With competitive pressures leading to lower selling prices and profit margins for many carmakers, it remains to be seen whether that strategy is sustainable as it scales up.
There are some differences
Still, NIO is not Tesla. The latter’s early strength in the EV market gave it some advantages that later entrants do not have. Then again, they benefit from a larger, more developed market.
NIO has focused its efforts to date on vehicles. Tesla today aims to expand into areas such as robotics.
A decade ago though, it was more focused on cars. It had only made early steps in the power generation market and in April 2015 set up its energy division. So a decade ago, Tesla was a car company with energy ambitions.
NIO is a car company now, but its battery swapping technology could yet let it move into energy storage. Other technologies may yet let it move into adjacent areas like artificial intelligence (AI).
NIO does remind me a lot of Tesla a decade ago. But until it has proven its business model can make money, I will not be buying NIO stock for my portfolio.
