Tesla (NASDAQ:TSLA) has been one of the most enriching stocks to own over the past decade. Across this time, and despite much drama along the way, it’s up around 2,470%.
Today, Tesla is still proving the naysayers wrong, with its share price nearing an all-time high.
NIO (NYSE:NIO), on the other hand, has been an altogether different story. Since listing in 2018, the stock has spent more time falling than rising. And currently at $7, it’s around 89% off a high of $62 reached back in 2021.
Yet so far this year, NIO (+59%) is outperforming Tesla (+13%). Were it to ever match the current market size of its American EV peer, it would make investors buying today at $7 a hell of a lot of money.
Let’s take a look at the bull and the bear case for NIO stock. Then I’ll don my judge’s wig to deliver my verdict.
Bull
The investment case here rests upon a few key ingredients. One is the huge Chinese EV market in which NIO operates. Unlike in the US, where there’s EV pushback from some politicians and consumers, the transition to EVs in China has government backing and is in full swing.
The company continues to increases its sales, albeit from a much lower base than Tesla. In Q2, vehicle deliveries were up 25.6% year on year to 72,056, with revenue rising 9% to RMB19bn ($2.66bn).
In August, NIO shipped 31,305 vehicles, a company record. Growth is being driven by the launch of two new brands (Onvo and Firefly), which target the family-oriented and small high-end segments, respectively. These significantly expand the firm’s total addressable market.
One thing I think separates NIO from Tesla is the much faster pace at which it launches new models. Onvo’s spaceship-like SUV, the L90, was launched in July, followed by the new NIO ES8 in August.
In Q3, it expects to deliver between 87,000 and 91,000 vehicles, which would represent an impressive 40.7% to 47.1% increase from Q3 2024.
All in all, the growth story here is still very much intact. The company seems to be differentiating itself in a very crowded Chinese EV market. So I can see why some investors might be bullish.
Bear
Turning to the bear case, this fundamentally revolves around the lack of profitability. NIO has never turned a profit, unlike Tesla. In Q2, the net loss was just under $700m.
I always get a feeling of déjà vu writing about NIO because its quarterly losses are both large and consistent! It was also around $700m in last year’s Q2.
Consequently, the company has to keep raising money to keep the factory lights on. Its latest equity offering raised $1.16bn, which will last a couple of quarters at the current rate of cash burn.
The good news is that this will add to the $3.8bn that was on the balance sheet in June. So the firm is ok for cash for now, but the risk of dilution is never far away for shareholders here.
Finally, China’s relentless EV price war worries me. It appears to be a price-cutting race to the bottom.
Verdict
As is probably already clear, my view is that the stock isn’t the next Tesla. It’s too risky for my liking, even after falling 89% since 2021. I won’t be buying.
