Tesla and NIO have fallen 30%+: should I buy these stocks now?

The share prices of Tesla and NIO have pulled back sharply in recent weeks. Edward Sheldon looks at whether he should buy these stocks now.

| 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.

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.

Tesla (NASDAQ: TSLA) and NIO (NYSE:NIO) are two growth stocks that have experienced sharp pullbacks recently. Since rising to $900 in late January, Tesla has fallen to $621, a decline of 31%. Meanwhile, after rising to $67 in January, NIO has fallen to $39, a decline of 45%. However, over a 12-month horizon, Tesla is still up around 330% while NIO is up approximately 960%.

Is this latest share price weakness a good opportunity for me to buy these electric vehicle (EV) stocks? Let’s take a look at the investment case.

What I like about Tesla and NIO stock

There are things I like about both Tesla and NIO. For starters, they operate in a high-growth industry. And there’s no doubt the global electric vehicle market is set for monster growth over the next decade.

According to Allied Market Research, the market is set to be worth around $803bn by 2027, up from $162bn in 2019. That represents annualised growth of 23%.

Meanwhile in China, EV sales could rise 40% this year to reach 1.8m units, according to Xu Haidong, deputy chief engineer of China Association of Automobile Manufacturers. This kind of growth is likely to provide huge tailwinds for companies including Tesla and NIO.

Secondly, unlike many other EV start-ups, both Tesla and NIO are already delivering vehicles. And the numbers are impressive. Last year, Tesla delivered 499,500 vehicles, up 36% year on year, while NIO delivered 43,728 vehicles, up 113% year-on-year. These figures show both companies are growing at a rapid rate right now.

EV competition is heating up

However, I do have some reservations about these stocks. The first is around their competitive advantages. Can Tesla and NIO protect their market share?

Other more traditional automakers are now getting serious about EVs. According to Morgan Stanley, Ford‘s Mustang Mach-E is capturing market share from Tesla in the US. Meanwhile, Volvo recently announced that it will only sell EVs by 2030. 

Many new entrants are also set to enter the EV market in the near future. One example is Fisker. Its flagship vehicle, the Ocean, has been fashioned by Danish automotive designer Henrik Fisker, who is also responsible for the Aston Martin DB9. Fisker plans to start production next year.

It’s also worth noting that in China, Tesla and NIO face strong competition from leading domestic automaker SAIC Motor, which has partnered with General Motors to build a $4,500 mini EV. Last month, sales of SAIC’s Hong Guang Mini EV were around double those of Tesla. And, in the second half of 2020, SAIC sold 112,000 of these EVs. Other EV companies in China doing well include Xpeng and Li Auto.

My second concern is that even after the recent share price pullbacks, these stocks still look expensive. Tesla’s market-cap is around $600bn, valuing the company at $1.2m per car sold last year. NIO’s market-cap is about $62bn, valuing the company at around $1.4m per car sold. Volvo, by contrast, has a market-cap of around $50bn, valuing the company at around $76,000 per car sold, although it’s obviously not growing as fast.

Should I buy Tesla and NIO now?

Weighing everything up, Tesla and NIO are not buys for me right now. Their growth is impressive but I’m concerned about the risks.

All things considered, I think there are other safer growth stocks I could buy for my portfolio right now.

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and 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

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »