China-based EV developer Nio (NYSE:NIO) has been in overdrive. The chart on Nio stock is, well, mostly upward sloping since April, with the return of 9X or so.
Granted, Nio has had to deal with some major challenges. In 2019, the company had to recall about 5,000 ES8 SUVs because the batteries caught fire. There also were some layoffs.
But Nio CEO William Li has proven to be a very capable leader. Not only was he able to improve the company’s quality control but he also put together an important financing deal.
Note that he raised about $1 billion from Hefei City Construction and Investing Holding, CMD-SDIC Capital and Anhui Provincial Emerging Industry Investment. This was followed up with the issuance of 72 million shares to the public.
So then, what now? Will Nio stock continue to be a good investment? Well, to see, let’s consider some of the latest developments.
Nio Stock Gets Its Groove Back
The competitive environment in China for EVs is definitely intense, but Nio has done a good job in setting itself apart from its rivals. That is, the company has been focused creating sleek and innovative designs. When it comes to cars – especially those that command premium prices – this strategy can be a winner.
But success has been more than fancy designs.
“Nio has created a car that has a removable battery that cuts down the charging time,” said Victorio Stefanov, who is a Trader & Success Coach at TRADEPRO Academy. “You can drive up to a charging station and simply swap out your Nio battery. The company has also secured over 500 patented technologies into its battery swap solution.”
Taken together, Nio has been able to grow at a rapid clip. In September, there was a 133.2% year-over-year surge to 4,708 vehicles. As for the quarter, there was a 154.3% spike to 12,206. Part of the acceleration is attributable to the launch of Nio’s newest vehicle, the EC6 (the company currently has three cars on the market).
It’s a 5-seater premium smart electric coupe SUV that has a retail price that ranges from roughly $52,441 to $74,957 (this does not include government subsidies). The car includes comes with Mobileye chips for safety and has a system to allow for upgrades over the air.
But of course, regarding the overall delivery growth, there have been other important factors. The Chinese government has continued to be a major proponent of EVs. The goal is to hit a 25% penetration rate within about five years. And given that more than 20 million vehicles are sold each year in China, the market potential for EVs is significant.
In the meantime, the country has been able to effectively manage the Covid-19 pandemic. For the latest quarter, the GDP increased by nearly 5% and retail sales have been robust. There has also been an acceleration of digital adoption, which has boosted the share prices of companies like Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD).
In other words, the environment is quite positive for Nio.
Bottom Line on Nio
Nio is often referred to as the next Tesla (NASDAQ:TSLA), which has certainly been a nice catalyst for the stock! Yet there are still clear differences to keep in mind. Tesla’s strategy has been to develop its own manufacturing system, which has helped with profit margins.
The company is also a leader in machine learning and Artificial Intelligence. This has been fueled by the huge dataset generated from Tesla’s large number of cars on the road.
True, Nio is starting to invest more in AI and other cutting-edge technologies. But there is a long way to go. The fact is that Nio does not have the kind of deep engineering DNA that Tesla has.
The irony is that Tesla may be the Tesla of China! Consider that the company is the leader in sales of EVs in the country.
So all in all, investors should be wary with Nio stock. The valuation is getting to frothy levels, at least based on the small volumes. Moreover, Wall Street seems to be attributing Tesla-like qualities to the company that are fairly thin.
For now, it’s probably best to be cautious on NIO stock – and perhaps wait for a better price.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.