I’m incredibly excited about the electric vehicle boom that’s currently underway across the world. I think electric vehicles are the future, and it’s only a matter of time before the internal combustion engine is consigned to history.
With that in mind, I’ve always been interested in Tesla (NASDAQ: TSLA) stock. Meanwhile, NIO (NYSE: NIO) stock has also recently attracted my interest as the business has developed its investment proposition.
However, despite my belief the world is facing an electric future, I’ve always been put off by the valuations of these two firms. But, after recent declines, shares in both businesses now look to me to be far more attractive.
Tesla stock on sale
Based on current company fundamentals, Tesla looks to me to be the better business right now. It has a head start over NIO because it’s a far bigger business. For 2020, Tesla’s net income was $721m, and full-year revenues came in at $31.5bn, an all-time high.
The company is expecting to report further growth in 2021. Alongside 2020 results, Tesla guided for production growth of 50% this year, indicating output of 750k vehicles. Total production capacity stands at just over 1m cars.
Meanwhile, NIO reported 43,728 vehicle deliveries in 2020 and $2.3bn of revenues. The full-year loss from operations was $706m.
Based on these figures alone, I’d buy Tesla stock over NIO stock. But the numbers only tell part of the story.
I think NIO has the advantage over its American peer in China’s electric vehicle market. This could be far more lucrative in the long term for the business. Tesla can sell in China, but this market can be incredibly unpredictable and driven by politics.
Nio stock risks
I’ve looked at the opportunities these companies have, but I need to consider the risks as well. The most significant risk facing both Tesla and NIO, in my opinion, is the challenge for more established car makers, such as VW and Mercedes. These two German giants have earmarked tens of billions of dollars in spending for electric vehicle deployment over the next few years. They also have more money to throw at marketing and aftercare service.
Both companies also face environmental challenges. Rare earth metals, which are fundamentally crucial for electric vehicle development, are primarily mined in regions such as China and the Democratic Republic of Congo. Both regions have faced accusations of poor working conditions for miners. Of course, Tesla isn’t the only company with exposure to this risk. Other electric vehicle manufacturers will face the same challenge.
The bottom line
Considering all of the above, if I had to choose one business, I’d buy Tesla stock over NIO stock today. However, I’d avoid both companies right now because I think they could face further uncertainty in the short term.
I may also be able to pay a lower price to acquire one or both of these revolutionary companies at a later date.
