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Should I buy Tesla stock or NIO stock for my ISA?

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Stocks and Shares ISAs have some unique tax advantages. These advantages make them the perfect wrapper to hold high-growth investments such as Tesla (NASDAQ: TSLA) stock and NIO (NYSE: NIO)

However, these investments are not going to be suitable for all investors. High growth stocks and shares can be incredibly risky.

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So, while they may have the potential to earn a large return for investors, there’s also the risk of large losses. As is the case with all stocks and shares, investors should only ever invest as much as they can afford to lose.

ISA advantages 

An ISA wrapper can be one of the best ways to own investments. Operated like a regular dealing account, investors can deposit up to £20,000 a year into a Stocks and Shares ISA. There’s no tax to pay on income or capital gains earned on funds invested through one of these products. 

Investors can hold stocks and shares inside an ISA traded on what is known as a recognised stock exchange. This includes large American exchanges like the New York Stock Exchange and NASDAQ. NIO stock is traded on the NYSE, and Tesla stock is traded on the NASDAQ. 

However, there are some critical differences in investing in US equities compared to UK stocks. Currency movements can impact returns, and there may also be higher commission costs involved. This is why US equities may not be suitable for all investors. 

However, I’m comfortable with the level of risk and challenges involved. 

Tesla stock vs NIO stock

When it comes to deciding which company is better, I believe Tesla has the advantage. 

NIO has potential, but the company is still in its early stages, unlike its peer. Tesla is already one of the world’s largest car manufacturers, and its electric vehicles are in operation and recognisable the world over. NIO has nowhere near the same level of visibility at present. 

That’s not to say that the company does not have a bright future. Electric vehicles are rapidly gaining market share, and the market potential is vast. The global electric vehicle market was valued at $162bn in 2019 and is projected to reach $803bn by 2027

I think these figures illustrate the market potential of these businesses. Of course, they are not the only electric car manufacturers, but they are two with the highest profiles. This should help them grab market share and attract consumers as the electric car market grows. 

That being said, these companies aren’t without risks. Both businesses are struggling to earn a profit. Tesla stock has surged off the back of the company’s rising output, but the firm also recently had to recall over 134,00 vehicles. I think that shows that the organisation still has teething problems. 

Meanwhile, there have been questions asked about NIO’s accounting practices and product quality. These challenges could pose a risk to the firm’s growth in future. 

Still, as a way to play the electric vehicle boom over the next decade, I would buy Tesla stock for my ISA and avoid NIO stock. However, I would keep a close eye on the latter business. As if its growth takes off, the firm may give Tesla a run for its money. 

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Rupert Hargreaves does not own any share 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.

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