Bullish: Chris MacDonald
In my opinion, one can’t be bullish on Tesla and bearish on NIO (NYSE: NIO) stock. From a growth perspective, both have similar outlooks (one could argue the outlook for China’s EV market is much more significant than the Americas or Europe (China’s EV market share as a percentage of the global market is more than 50%, and China is by far the fastest-growing large economy in terms of EV adoption).
Those bearish on NIO typically point to the fact that the company’s based in China. However, the recent regulatory crackdowns haven’t hit the Chinese EV sector for a reason. There’s not likely to be a willingness from the Chinese government to kill its “golden goose.” NIO is the poster child of the EV sector in China, and President Xi has a reason to want global dominance in this space. Accordingly, I see a greater probability that American companies like Tesla will get pushed out of China (by far the most lucrative EV market) in the future, favoring NIO’s dominant market position as the leading Chinese EV manufacturer. There’s already been steps made in this direction.
From a valuation standpoint, NIO’s price-sales multiple and essentially every other financial metric are many times better than that of Tesla, given how far it’s run. I think the market is currently viewing Tesla as the only global EV player that will make it, and essentially all other EV companies globally will be flops. This is indicated by the fact that Tesla’s market cap is higher than the combined market caps of the next 14 largest companies at the time of writing.
Chris MacDonald owns shares in NIO.
Bearish: Roland Head
I’m a big fan of electric cars. But I won’t be buying shares in upmarket Chinese EV manufacturer NIO. Although sales are growing fast and I’ve seen good reviews of the company’s cars, there are some things I just can’t accept.
As I write, NIO has a market cap of almost £55bn. To put that in context, US group General Motors is valued at £57bn — almost the same. That’s where the similarity ends, though.
NIO delivered just 43,728 cars in 2020, valuing the business at £1.3m for each car sold. In contrast, General Motors sold 2,547,339 cars in 2020. That values GM at just £22,400 for each car sold.
Admittedly, GM is slow growing, while NIO’s deliveries doubled in 2020. Based on sales so far this year, I suspect NIO sales could double again in 2021. If sales continue to grow at this rate, NIO could match GM’s sales in six years’ time.
Personally, I think that’s unlikely. All the world’s main car manufacturers are now investing heavily in electric car production. During the third quarter of this year, GM sold more than 100,000 EVs in China alone — 10 times more than NIO sold globally.
Over the next few years, I reckon we’ll see big manufacturers like GM, Volkswagen and Ford playing catchup with EV specialists like NIO. As customer choice improves, I think the market will get tougher for smaller manufacturers.
Buying NIO shares means paying upfront for years of future growth. I’m not comfortable with this. In my view, the risks outweigh the potential rewards.
Roland has no position in any of the shares mentioned.