I like to trade assets that move — and out of all the automakers, Nio (NYSE:NIO) stock is among the most volatile. Last year gave Nio traders heart palpitations. As the share price touched $10, nearly went all the way down to $1 and ended the year around $4.
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While General Motors (NYSE:GM) has attempted to make headway into the Chinese automotive market, the biggest threat by far has been Tesla (NASDAQ:TSLA), which I like to call the 800-pound gorilla in the electric vehicle (EV) niche. With such strong and relentless competition, is this really a good time to consider Nio stock?
Let’s dive deeper.
Challenges for NIO Stock in a Weak Chinese Auto Market
I won’t deny that Nio shareholders enjoyed a strong December, and I’ll address that momentarily. First, though, I’d like to size up the competition, starting with General Motors. While not concentrating on electric vehicles in particular, General Motors is taking steps to win over Chinese consumers.
The results, it seems, have been unimpressive so far. 2019 marked General Motors’ steepest decline in Chinese vehicle sales, and the company expects this year to be challenging as well. Last year was General Motors’ second-consecutive year of declines, with just 3.09 million vehicles sold in China in 2019. This represents a 15% drop compared to 2018’s sales.
Admittedly, General Motors doesn’t deserve all of the blame for this. As reported by the China Association of Automobile Manufacturers, the Chinese automotive market is expected to record its third year of contraction in 2020. This includes a 2% year-over-year decline in auto sales this year following a painful 8% decline last year.
Lingering trade-war tensions and a struggling Chinese economy are the most obvious culprit here. And these factors will impact Nio along with its chief rival, Tesla. Compared to the EV-focused Tesla, though, General Motors isn’t as direct a threat to Nio at the moment. However, GM should remain on every NIO shareholder’s radar as a factor in 2020.
Tesla Makes a Big Splash in China
Speaking of Tesla, many of you have probably heard about CEO and consummate showman Elon Musk dancing on a stage to celebrate the rollout of Tesla’s Model 3 electric vehicles in China. Pomp and fanfare aside, it has in fact been reported that the company’s so-called Shanghai Gigafactory is being inundated with orders at a daily rate of over 1,000 Model 3 vehicles.
That’s all fine and good for TSLA shareholders, but where does it leave Nio? Actually, a recent report from the company suggests that all is well as Nio’s December vehicle deliveries increased 25.4% month-over-month.
With 3,170 vehicles delivered in December 2019, NIO stockholders celebrated a 22.7% increase in ES6 deliveries and 37.3% increase in ES8s deliveries.
While he didn’t dance, Nio Chief Executive William Bin Li took the opportunity to vaunt his company’s impressive recent performance:
“December marked the fifth consecutive month of increasing deliveries for NIO despite the continuous softness of the overall auto industry and in particular, the significant decline of the electric vehicle sales in the second half of 2019.”
Thus, even with flagging Chinese auto sales and the Tesla threat in effect, Nio’s vision remains ambitious and the numbers seem to justify NIO stock’s recent recovery. Nio doesn’t have the size or the deep pockets of General Motors or Tesla. However, smallness can actually be an advantage because it allows for exponential growth. This factor alone could benefit the NIO stock price if the company’s current trajectory of expansion persists.
The Takeaway on Nio Stock
Although I won’t assign NIO stock a “must-own” rating at the moment, I’m also not prepared to recommend profit taking quite yet as there’s likely more upside ahead. Strong competition is a factor, sure. But, given Nio’s eye-opening vehicle-delivery numbers and share-price recovery, Erratic Elon might not be the only one dancing pretty soon.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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