Say what you want about Tesla (NASDAQ:TSLA), but it’s experienced big-time success. While it may be under pressure now, the stock has eclipsed a $50 billion market cap while putting hundr of thousands of electric vehicles out into the world. Can Nio (NASDAQ:NIO) be next? That’s exactly what investors who are buying Nio stock are hoping for.
Of course, TSLA is controversial. It’s attracted a huge following of bears — under the hashtag $TSLAQ — and has turned Tesla into a very emotional, battleground stock. Some may ask why NIO would want to emulate those attributes.
Simply put, NIO wants to deliver the same massive returns. to its shareholders. Tesla’s $40 billion market cap is a far cry from the $60+ billion market cap it’s carried many times in the past and the $50 billion market cap it maintained for years. Even after its recent slide ,though, its market cap is more than 14 times the size of the $2.8 billion valuation of Nio stock.
Navigating the Minefield
General Motors (NYSE:GM), Daimler (OTCMKTS:DDAIF) via Mercedes-Benz, Volkswagen (OTCMKTS:VLKAY, OTCMKTS:VLKAF) via its own brand, Audi , Ford (NYSE:F) and a number of other are launching electric vehicles.
It may be a stretch to say all vehicles are going electric, but it’s a much more popular trend than five or ten years ago, mostly thanks to the improved driving range of electric vehicles. An equally important catalyst for Nio is that the company operates in China. The country is the world’s largest electric-vehicle market. Plus, its middle class is booming and it has 1.4 billion citizens.
So where is NIO going wrong?
Love or hate Tesla CEO Elon Musk, the lack of a “Musk factor” is weighing on Nio stock. It doesn’t have the same pizazz or the same salesman pitching the company’s cars. It’s not impossible for NIO to survive or even thrive without an Elon Musk type. But having one would certainly help Nio stock.
Valuing Nio Stock
When NIO reported its first-quarter results in late May, its earnings and revenue beat analysts’ average expectations. The company still lost 37 cents per share, but that was better than the 50 cents per share loss that analysts, on average, were expecting. Its sales of $236.1 million beat the consensus estimate by $25.5 million, but its revenue decreased by more than 52% sequentially.
Its gross margin went from 0.4% in Q4 to negative 13.4% in Q1. This statement didn’t generate much confidence with investors either:
“Deliveries of the ES8 in April 2019 were 1,124 vehicles, which reflected a greater than anticipated slowdown in monthly deliveries primarily due to the electric vehicle (EV) subsidy reduction announced in late March, as well as the slowdown of macro-economic conditions in China which has been exacerbated by the US-China trade war, particularly in the automotive sector where wholesale passenger vehicle sales were down approximately 15% year on year from January to April 2019, compared to the same period of last year.”
Trading Nio Stock
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While the company beat top- and bottom-line expectations, the report was pretty discouraging for the owners of Nio stock in my mind. As a result, it’s no wonder Nio stock price went from $4 to sub-$2.50 in less than a month. Still, that was really disappointing for Nio stock, which was trading north of $10 back in March. It’s not often we see a 78% decline in just over three months.
That’s a pretty clear indicator that Nio stock is a speculative, risky position. And while some investors may be attracted to the name down near these levels, I’m not among them.
Earlier this month, I flagged a potential pullback of Nio stock price, even though it was putting together some big rallies. Prior downtrend support (depicted by the blue line) was approaching near $3, while the declining 20-day moving average loomed large.
On June 20, we saw Nio stock back off that area of resistance and on Friday, June 21, Nio stock price fell sharply. The decline puts the $2.50 level back in play. Below that, the $2.35 lows are on the table, and if buyers don’t step up, Nio stock could be headed below $2.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.