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Finance NIO Stock Analysis | Should You Buy?

NIO Stock Analysis | Should You Buy?

Disclaimer! This post may contain affiliate links

When choosing where to invest your money, it can be a little difficult to filter out which companies are worthy of your hard-earned money. There is never-ending news coverage around different stocks as well as plenty of opinions to listen to. However, to help out, we are examining one of the most popular stocks of the year and highlighting a few pros and cons of their business to see whether or not it is worth your investment.

NOTE: We are not a financial advisor, do your own research before making any investment decisions.

Who is NIO

Nio is a Chinese electric car manufacturer that strives to be the “Tesla of China”. They realize that electric cars are the future of the auto industry and think the big shift will come when people become excited about the prospect of owning an electric car. Due to this, they want to make the experience of buying and owning an electric car something that people look forward to. In total, they have 6 offices worldwide.

Similar to Tesla, their stock shot up in 2020 by an incredible 1,490% rising from $3/share to over $60/share and they now boast a market cap of $96 billion. Does this surge in stock price mean that you missed the boat and it’s too late to invest? Or does it mean that the train is just getting started?

Let’s take a look.

Reasons to buy

When buying a stock, it is usually wise to not only look at where a company is at right now but also where their business could be a few years down the road. This is especially true for a company that’s in a rising industry such as electric vehicles. It is a little bit like paying lots of money to draft a top sports prospect out of high school, in hopes that they will dominate the league in a few years.

Future of electric vehicles

It is no secret that the future of the automotive industry will be in electric and alternatively powered vehicles.  New U.S. President Joe Biden has been a big advocate of electric vehicles and, among other things, plans to spend $400 billion to add a new fleet of American government vehicles that are battery-powered. Additionally, according to the Society of Automotive Engineers of China, approximately half of all vehicles sold in China will run on alternative energy by 2035.

The Edison Electric Institute has also estimated that the number of electric on the road in America will go from 1 million to 19 million between 2018 and 2030. It is one of the fastest-growing markets in the world and since Nio is one of the bigger players in the electric vehicle game, this bodes very well for their company.

Battery-as-a-service

Battery-as-a-service is a program Nio offers that reduces the initial cost of vehicles for buyers as long as they agree to return for battery replacements and future upgrades. It is a little bit like a dealership dropping the price of a car as long as your promise to buy all your fuel from them. It is a common fact that existing buyers are 10x more lucrative than new buyers, and Nio is figuring out how to turn a one-time EV sale into a long-term stream of revenue.

Growing revenues

Nio is still an incredibly young company and only sold their first car in 2018. However, over the past 3 quarters, they have seen revenues steadily increase from $1.37 billion to $4.53 billion. This is an impressive feat under normal standards but it is particularly good to see considering there was a global pandemic throughout most of 2020.

Overall, there are plenty of strong reasons to consider investing in Nio’s young but promising company.

Risk factors

That being said, there is almost no company on Earth that comes with zero risk factors. If 2020 taught us anything, it is that even the most stable businesses can be subject to unexpected risks. Let’s take a look at some of the risks that come along with investing in Nio.

China risk

There is almost always risk when dealing with companies who are out of the country (assuming you are not a Chinese investor). Other countries have their own set of rules and standards when it comes to regulations and accounting principles which can sometimes leave investors in the lurch. A good example of this happening was the scandal that happened with Luckin’ Coffee in 2019.

Additionally, China is a particularly interesting country because the government takes a very large role in almost every major corporation. They assign government members to sit in on the boards of major companies and expect that all decisions are made with the best interests of the country in mind. This can sometimes mean that the company executives can get overruled.

Competition

Just because the future of electric vehicles is expected to be big, it does not necessarily mean that Nio will be the one to capitalize. They will face heavy competition from all sides and many traditional automakers are starting to invest a lot of money into electric vehicles. Since these automakers (like Ford or GM) are already very established in the industry, it could raise the barriers of entry for newcomers like Nio.

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Lack of production

Despite all of the hype and the surge in their stock price, Nio only delivered 43,000 vehicles in 2020. This was an increase of 111% from the year before which is impressive but as a standalone number, it is not groundbreaking. Compare this to Tesla delivering almost 500,000 cars over the course of 2020 and GM selling 2.5 million.

We hope that you have found this article valuable when it comes to understanding whether or not NIO would be a good investment. If you are interested in learning more, please subscribe below to get alerted of new articles as we write them!

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