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EV stocks have joined the market-wide dip in the last month. The S&P 500 lost 4.1% from February to March. Stocks that once seemed like they were set to fly through the roof have taken pretty steep cuts.
Nio stock is down 31% since January, from an all-time peak of $61. A combination of broad market struggles and company fundamentals drove the slump.
But Nio Inc. (NYSE: NIO) is about to go on a rally again.
This is still one of the leading EV stocks in the world, and you want to grab it while it's cheap.
Short-term losses could seem inevitable after the EV industry gains we saw last year. There was a layer of hype to the market with a host of special purpose acquisition companies (SPACs) rushing EV stocks to go public.
We saw the rise of several EV stocks in the last year. Workhorse Group Inc. (NASDAQ: WKHS) popped as much as 1,033% after we recommended it in January of 2020. Nio is even up 1,650%, from $2 to around $42 in the last 12 months.
Since then, a few EV stocks have been outed as less-than-promised. Nikola Corp. (NASDAQ: NKLA) came under fire for misleading investors about its product. More recently, Lordstown Motors Corp. (NASDAQ: RIDE) was accused of forging orders to raise capital.
Not to fear: We're watching Father Time separate the wheat from the chaff. Here is what makes Nio the former.
Nio Might Have an Edge on Tesla
While the stock price might not reflect this yet, it will.
Nio is the Tesla Inc. (NASDAQ: TSLA) of China.
If you know anything about Tesla over the last 12 months, that should excite you. The stock right now is up more than 678%, from $85 to $662.
Tesla came through with deliveries and profited for six consecutive quarters. It has withstood all the volatility of the pandemic and is ready to keep going as the world gets vaccinated.
Nio has not been profitable for six consecutive quarters. In fact, it recently reported an earnings miss of $0.16 per share.
Tensions continue to brew between the United States and China, stifling relations between American and Chinese companies, prompting fear of a chip shortage for Chinese manufacturers of all kinds.
Interest rates are also threatening to rise in the United States, which could lead to more saving and less long-term bullishness in companies like Nio.
These are all things troubling Nio. But the good far outweighs the bad if we can zoom out a bit.
Right now, Nio is doing something Tesla can't.
One of Tesla's main rallying cries has been to normalize electric vehicles by making them cheaper.
Electric vehicles are generally still relatively pricey. A Tesla base model starting around $30,000 is considered progress. But between these two companies, Nio has taken the more concrete steps to making EVs affordable.
The company has potentially lowered the cost of an EV by as much as $10,000 with rentable batteries. This is otherwise called "battery-as-a-service." The way it works is you simply buy the car, then subscribe to the battery on a per-month basis.
This is a brilliant revenue tactic that also makes owning an EV more accessible to everyday drivers. It's similar to the new cloud gaming trends where, instead of paying $1,000 up front for a piece of hardware, gamers pay $10 per month indefinitely for online access.
In addition to being cheaper, the Nio battery is also said to be more powerful and charge faster than the Tesla.
Nio Stock's Biggest Catalyst Is Coming
The biggest difference between Tesla and Nio is that Tesla stock has likely seen the majority of its growth in the last year. Nio, on the other hand, still has a long way to go.
At $636 billion, Tesla does not have much further to go. Compare that to Nio's $66 billion market cap.
If you're looking for the stock more likely to increase tenfold, you would go with the lower market cap that is quietly growing in the background and adjusting its business model to meet consumer needs.
The battery-as-a-service model has the potential to earn Nio more profit per car sale than Tesla too.
It is also yet to be adopted anywhere other than China. Tesla has seven factories spanning the United States, China, and Germany, while Nio still only has one.
When Nio gets an opportunity to scale its products and services, the stock is due for a pop. And that could come sooner than later.
Last month, the media buzzed about a Nio U.S. job posting on LinkedIn. It could be a sign of things to come.
Whether or not that's the case, Nio has been gaining ground on Tesla in China alone.
Tesla was thought to be "king of the hill" in December with 23,804 sales. But that number was reduced to 15,484 in January as other domestic manufacturers threw their hats in the ring. Overall EV sales in China tripled year over year, and Nio sales quadrupled, revealing significant demand for a domestic manufacturer.
To make matters worse for Tesla, the company recently had more than 30,000 vehicles recalled for touch screen problems. It's Tesla's third recall in China since Q4 2020.
All things considered, Nio has a great chance of edging out Tesla at home, and if it goes abroad, the company will do even more damage in the EV space.
Nio's revenue is up 52% in the last four years. Though it's bounced in and out of profitability, the full strength of its product is yet to be realized in light of the greater EV industry.
The stock right now can be bought at a cool $41. Analysts say it could hit $90.81 in 12 months, a 116% growth target.
This is a great opportunity to buy a market-beating stock on a dip today. If the company does in fact branch out internationally, Nio could see growth similar to what Tesla saw last year.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.