Image source: Sam Robson, The Motley Fool UK
NIO (NYSE: NIO) stock has fallen 13.8% over the past two months. As such, a 10-grand investment made towards the end of March would now be worth about £8,620 (discounting currency moves).
While that might not sound too dramatic, it continues a worrying downwards trajectory that has been going on for a long time. Indeed, since peaking at $62 in January 2021, the NIO share price has crashed 93% and now trades for less than $4!
This is in complete contrast to Tesla (NASDAQ: TSLA), whose shares are up more than 500% over five years.
The Tesla of China?
NIO was dubbed the ‘Tesla of China’ after it first appeared on the stock market in 2018. In hindsight, we now know it’s nothing of the sort.
Tesla is a global company whereas NIO’s sales almost all still come from China. It’s taking tentative steps to expand abroad, but the brand is not well-known outside of its home market.
Last year, the US EV giant delivered 1.8m cars versus NIO’s 220,000. Moreover, Tesla is vertically integrated and is profitable. NIO has relied on manufacturing partners in the past and remains heavily loss-making. It lost over $3bn last year on $9bn of revenue.
These differences explain why Tesla’s market value is now approximately 132 times larger than NIO’s.
Multi-brand strategy
Having said that, NIO is at least growing at the moment, unlike Tesla. In Q1, it delivered 42,094 vehicles, a year-on-year increase of 40%. In March, the firm delivered 15,039 vehicles, and around a third of those were from its new family-oriented brand ONVO.
This seems to set Chinese EV firms apart from their global rivals. They’re more aggressive in launching multiple brands. For example, BYD, Geely, and NIO have all created separate brands to target the mass market, mid-range, and luxury segments.
They do this because the enormous Chinese EV market is ultra-competitive and fast-moving. It’s easy to quickly get left behind, as some Western brands have found. So, from this point of view, NIO should be commended.
However, I’m not sure how successful these brands will be outside of China. Some may succeed, but most will probably fail. Will ONVO succeed in Europe? I have no idea. The market is so competitive that I find it hard to gauge whether NIO as a company has any sort of durable long-term advantage.
Should I buy this stock?
The stock is trading at just 0.88 times sales. If NIO had a clear path to profitability, I’d say that looks quite attractive. However, the path is as murky as it has ever been, in my opinion. Analysts currently see red ink spilling for at least another three years.
Now that the global EV market has become populated with multiple players, I struggle to get excited about investing in this space. Tesla is facing massive sales pressure while NIO is still burning through cash. I ultimately see both as risky stocks.
Weighing thighs up, I think there are more promising opportunities out there today for my portfolio.
