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Nio Stock Is Still Too Speculative for Most Investors

Dana Blankenhorn

There’s an old Wall Street proverb that even a dead cat will bounce if tossed from a high-enough building. In Mandarin, dead cat bounce translates to Sǐ māo tántiào or 死猫弹跳. A Chinese example of such a rally is Nio (NASDAQ:NIO).

Nio Stock Is Still Too Speculative for Most Investors

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Nio was called the “Chinese Tesla (NASDAQ:TSLA) when it went public last September. On its opening day of trading it sold for as much as $12.69 per share. Since then, except for a brief period in March, it has been all downhill.

But a surprising pick-up in deliveries gave the shares a 45% rally in one week recently. With 87.4 million shares traded July 9, Nio had the highest volume on any U.S. exchange.

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So, buy, buy, buy? No, no, no. Wait, wait, wait!

At least, know what you’re getting into.

Nio Stock and the EV Revolution

This much is true. There’s an electric vehicle revolution going on. China is at the heart of it.

But as government subsidies have been pulled, sales have declined. Thus, it was a big surprise when the China Passenger Car Association said sales in June rose 4.9% from a year earlier.

Nio itself delivered 1,340 vehicles. Deliveries for the full quarter were 3,553. Tesla, by comparison, delivered 95,200 vehicles in the second quarter. Nio is not Tesla.

Before this good news, all the commentary on Nio was bad. Some 4,803 cars were recalled after the batteries in three of them caught fire. Lithium ion batteries are subject to this risk, and a short-circuit can mean big trouble.

The views of our David Moadel were typical. “Can the Nio Stock Wreckage Be Salvaged?” he asked on June 28. Nio, he concluded, is a speculative bet. It was a perfect set-up for anything perceived as being good news to send the stock rocketing upward.

But at its July 11 opening price of $3.69 per share, Nio is still $2.50 per share away from what had been its trading range around $6 per share last Christmas. It’s a $4.2 billion market cap on $4.9 billion of 2018 revenue, on which it lost $23.3 billion. (Ouch.)

Seeking Hope

That doesn’t mean a speculation on Nio isn’t one some young investors might want to make.

The company has begun deliveries of a new “crossover,” the ES6. The ES6 has a swappable battery pack, so its range can be upgraded. There’s also a “hypercar” called the ES9 on the horizon, which is setting speed records. Nio is once again talking about building its own factory, rather than relying on state-owned JAC Motors.

Despite the subsidy pull-back, and despite the spectre of a Tesla factory going up in Shanghai, the fact is the Chinese government remains big on electric cars, and especially big on Chinese electric car companies. The MEB platform being pushed by Volkswagen (OTCMKTS:VLKAY) could create a China-based, global standard for mass-market electrics within 5 years.

In that world, a luxury Chinese electric might sell well.

The Bottom Line

Sadly, I agree with our Thomas Niel, who warned investors away from Nio on July 5. He sees the local market as saturated, the export market subject to the trade war.

I think there are better ways to play the trend. Warren Buffett has invested in BYD Company (OTCMKTS:BYDDF) He took a 9.9% stake for $282 million 10 years ago, when BYD was just a battery maker. BYD is growing faster than the Chinese electric car market, with sales of 73,172 vehicles in the last quarter.

If you’re going to bet on electric cars, bet on the mass market, not the class market.

Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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