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Why NIO Stock Is A Better Bet Than Nikola Or Tesla

Written by

Alex Carlson

Published on

June 10, 2020

Right now, all Mr. Market wants to talk about and focus on is Nikola Stock (NASDAQ:NKLA). For those that missed the move in NKLA, they can read our latest coverage on the company here. While we know it is frustrating hearing stories about traders making a fortune in just a few days, the key to successful investing is to find the momentum BEFORE it happens. If you missed the move in Nikola or Tesla, that's okay because the big move has yet to happen in NIO Stock (NYSE:NIO). NIO Stock Daily ChartAs you can see from the NIO stock chart above, NIO stock has been on a steady trajectory higher but has not skyrocketed like Nikola stock. That could all be about to change. Nikola Stock Daily Chart

About NIO Stock

First up, before we get into the investment case for NIO stock, here's a little background info on the company. NIO Inc. is a pioneer in China’s premium smart electric vehicle market. NIO designs jointly manufacture and sell smart and connected premium electric vehicles, driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence.NIO began deliveries of the ES8, a 7-seater high-performance premium electric SUV in China in June 2018, and its variant, the six-seater ES8, in March 2019. NIO officially launched the ES6, a 5-seater high-performance premium electric SUV, in December 2018 and began deliveries in June 2019. NIO officially launched the EC6, a 5-seater smart premium electric Coupe SUV, in December 2019 and plans to commence deliveries in 2020.[embed]https://www.youtube.com/watch?v=eikfArKjQ50&feature=emb_title[/embed]

NIO vs Nikola

Everyone is focused on finding the next Tesla. After all, it's delivered huge returns for shareholders. That has investors climbing into Nikola Stock thinking it's the next Tesla. However, comparing NIO to Nikola and it's easy to see that NIO might be the better play.Nikola has a current market cap of $28 billion, yet has ZERO sales. Nikola is forecasting that it will reach $1 billion in sales not for another two years while Nio is already at $1 billion in sales. NIO's market cap is just around $7 billion. For NIO to have the same market cap as Nikola, it would have a share price of $24, signaling a lot more upside and why the stock could skyrocket if Nikola investors rush into NIO.Furthermore, NIO expects to break even in 2022 once it can deliver 10,000 cars per month. Encouragingly, the company recently revealed that it delivered 3,436 vehicles in May 2020, representing a strong 215.5% growth year-over-year.

NIO Share Offering

NIO stock traded down 5% in after-hours trading after offering 60,000,000 American depositary shares, each representing one Class A ordinary share of the Company. The Company intends to grant the underwriters in the ADS Offering a 30-day option to purchase up to an additional 9,000,000 ADSs.While no one likes dilution, there are two positives here. For one, the company conducted the share sale at new 52-week highs and not at the lows. Second, The Company plans to use the net proceeds from the ADS Offering mainly to fund its cash investments in NIO China, as well as other working capital needs. We expect NIO China will use the cash investments for research and development of products, services and technology, development of manufacturing facilities and supply chain roll-out, operation and development of its sales and service network, and general business support purpose.

NIO vs Tesla

The biggest market in the world for electric vehicles is in China. It's why Tesla is so focused on China with its Giga Shanghai factory. However, we don't think the Chinese government will allow a foreign brand to dominate the domestic market. It would hurt their national brand to see Tesla succeed. That's why NIO is the much better bet in the long-run. NIO also has backing from the Chinese government, so it's not only in their national interest but also their financial interest for NIO to beat Tesla in the world's largest EV market.Furthermore, the subsidy to purchase EVs under 300,000 yuan does not apply to manufacturers that use swappable batteries. Tesla does not use swappable batteries, while NIO does. Under this new policy, NIO is the biggest beneficiary as they are the only premium EV company with battery swap services. All future premium models (price above 300,000 yuan) developed by NIO that come with swappable batteries are still eligible for the subsidy.

Why Is NIO Stock Mis-Priced?

The simple reason is that it is a Chinese company trading on US markets. After what happened with Luckin Coffee (NASDAQ:LK), investors are leery about piling into many Chinese names. Even Chinese e-commerce giant Alibaba has lagged greatly behind Amazon when it comes to share performance.

Bottom Line

Currently trading with a market cap around $7 billion, NIO stock is an exciting story among small caps. With backing from Tencent and the Chinese government, we believe NIO will become the market leader in China over Tesla. While the bears point out that the recent $1 billion infusion from the Chinese government makes NIO dependent upon China, we will take the dominant market share of the Chinese EV market any day. It's not a question of if NIO will dominate over Tesla in China, but when.Good luck to all (except the shorts)!