Summary
* Nio, (NYSE: NIO) a Chinese EV manufacturer, delivered its first luxury Sedan, the ET7, on Monday.
* Other EVs are scheduled to be delivered this year.
* However, It would be too early to compare Nio to Tesla (NASDAQ: TSLA), the giant of EVs.
On Monday, Nio (NYSE: NIO) started delivering the first batch of its new luxury sedan, the ET7. Last year, during the unveiling, Nio said deliveries would begin in March this year and truly, they kept to schedule. The news sent the U.S-traded shares of the Chinese company surging. Shares were up 6.5% for the day and closed at $21.21 after the news broke out.
However, I must add that I was impressed by the Sedans unveiled by Nio (NYSE: NIO). For one thing, it showed that they have come to stay and become a big player in the EV space. Looking at their latest Sedan, the ET7 uses Nio's NT 2.0 architecture which has more robust computing powers, and it also allows for new features which involve advanced systems for driver assistance. Nio also announced that it would deliver two other models built on the NT 2.0 architecture this year. They are a smaller sedan called the RT5 and an SUV labelled ES7. All these vehicles are luxury EV cars.
However, the big question remains; a question that investors are eager to know the answer to:
Is Nio Going To Outpace Tesla In EVs?
Let us analyse both the Bearish news and Bullish news for NIO to draw our conclusion.
The successful delivery of its first luxury EV is just a step in the right direction for Nio. The company has mixed successes and even failed to post profits in previous years. In 2021, its stock fell 40%. However, Nio's operating performance has held steady over the years. Its deliveries for 2021 stood at 91 429 units, representing a 109% growth over 2020, but that is not enough for it to take center stage globally.
Why did I say so?It is because, even Xpeng (NYSE: XPEV), another local Chinese EV manufacturer, delivered 98,000 vehicles last year, a 263% delivery growth. So to become a global player, NIO would have to outpace Xpeng first.
Also, there are concerns that the Chinese authorities' recent regulatory crackdown on tech companies will adversely impact Nio's performance. Many Chinese tech stocks, including Nio's, have been hurt by the greater scrutiny in China.
On the good side, however, the launch of the ET7 and the promise of further deliveries of other luxuries EVs could be the turning point for Nio. Coupled with the fact that the company has an attractive valuation compared to the overvalued Tesla. Compared to its projected revenues, the stock trades at 5x lower. It is more affordable than Tesla, which has a PE Ratio of 223.96, and Xpeng, with a PE of 0.00. Also, consensus estimates believe that Nio will grow its revenues by 75%, which is above Tesla's projection.
The longer-term outlook is also favorable. Nio (NYSE: NIO) is expanding rapidly into other markets apart from China. For example, it entered Norway last year and plans to carve a niche in five different European markets this year. It will also double its production capacity in its Hefei plant in China to 240,000 vehicles per year this year. All these considerations could help Nio increase the volume of its growth over the long term.
But these successes will meet stiff competition from Tesla (NASDAQ: TSLA) and the likes of local companies like Xpeng (NYSE: XPEV). Tesla is the industry leader in the EV market and, therefore, Nio's biggest rival. The fight would start for market domination in China, where Tesla already has a Giga Shanghai factory and produces its vehicles in China.
Deciding on whether Nio can outpace Tesla is too early. But Nio seems up for the challenge. In China, its SUVs are selling along with Tesla's Model Y. It would not be easy for Tesla to push it aside because Tesla faces stiff competition from other brands like Volkswagen, BMW, and Toyota. Also, Nio's addressable market among Chinese customers is much untapped.
Even if Nio succeeds in beating Tesla to the EV market, it could be only in China and would take a long time. So for now, I'll rather bet my money on Tesla than on any other EV player, especially when it's coming from China.
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