NIO (NYSE:NIO) shares are down 60% over the past 12 months. The stock appeared to have bottomed out — and even gained last week — before growth stocks took a hammering on Tuesday.
It fell 8.5% on Tuesday. But that doesn’t worry me as I believe the Shanghai-based electric vehicle (EV) manufacturer’s long-term prospects are good. The firm is trading at fairly low multiples compared to its peers and I think its automotive offering could challenge Tesla‘s dominance in the sector.
Here’s why I’m buying NIO stock, and not Tesla.
More than just a car
NIO is selling people a lifestyle and not just an EV. A sense of community enhances brand loyalty. It also appears that NIO’s Chinese customers are really buying into the brand. It certainly helps that they see it as Chinese-made and that the vehicles sell for a similar price to Tesla.
Customers can buy a whole range of branded products from the NIO Life store, from breakfast cereal, to wine and loungewear. NIO owners can also chat on the NIO app to get the most out of their cars. They can even earn tokens by attending NIO events and sharing stories.
More than 80% of customers participate in online or real-life community activities, using credits, apps and showrooms, the company’s executives said in 2021.
While NIO is by no means the first automaker to sell clothing, it knows people buy cars less often than they buy groceries and wine. This could certainly enhance revenue generation, as well as improving customer loyalty.
The app also allows customers to call on mobile charging vans and valet charging services.
Industry leading tech
The cars might not be as fast as their Tesla counterparts. But then who needs to go 0-60mph in less than three seconds? However, NIO has some pretty impressive tech that I think will help it conquer the market.
Its battery swapping technology allows drivers to pull up at a NIO garage and change their empty battery for a full one in a matter of minutes. Tesla experimented with this tech but decided not to go along with it.
Owners can still charge their cars in the conventional way. However, battery swapping is much quicker than a conventional charge.
The cars are also fitted with an interesting gadget called Nomi — a bit like Amazon‘s Alexa, but with a face — which sits on the dashboard. In addition to voice control, drivers can ask Nomi to open the window and even take a selfie. It might sound a bit naff, but owners seem to like it.
Valuation
I believe this will help NIO win market share from Tesla. But I also think it looks like a great stock for my portfolio because of valuation. While it’s not forecast to turn a profit until 2024, it has a price-to-sales (P/S) ratio of just four. By comparison, Tesla has a P/S ratio of 13.
There are, of course, risks including NIO’s possible delisting in the US and lockdowns in China, impacting production. Increased EV competition from established manufacturers could also hurt both NIO and Tesla.
However, in the long-run, I see it as a no-brainer. Tesla might be the industry leader now, but I think NIO will catch up. I’ve already bought NIO shares and would buy more.