Tesla Vs. NIO: Which Stock Should You Buy?

Consider this, you have cash in hand and you want to invest it. You are given two choices – Tesla and NIO. Which one would you pick based on today’s news and reports? Would it be Tesla or NIO? 

Now, don’t get me wrong, both Tesla and NIO are great companies. While Tesla has a market cap of close to $500 Billion, NIO on the other hand is a $60 Billion+ market cap company. 

One is trading just shy of $500 USD (Tesla) and the other ones just shy of $50 (NIO).

One is a massive proven technology company (Tesla), while the other is still in the infant stages and less than a decade old (NIO).

Now, which one would you choose Tesla or NIO? 

Oh forgot, one is an American company, while NIO is Chinese. Still, confused and can’t decide?  Let me help.

While Tesla has reported five consecutive quarters of profit and sells 500,000 cars by the end of this year, NIO has just 50,000 cars in sales and that too in China alone. 

Let’s get straight to the point here. 

Tesla Vs. NIO

Before we proceed, let’s quickly take a look at the market charts here. 

Tesla: ( 5 years chart)

NIO: (1-year chart)

While Tesla is currently trading at $500 per share, it’s had quite a rally this year alone. 

With NIO, it’s the same as well, the stock which was trading in single digits a couple of months back is now almost inching towards the $50 mark. 

Amazing right? You bet. 

You know what’s even better, both the companies have rallied huge since IPO and they are not done yet. 

Why Should You Buy Tesla over NIO?

Tesla will be added to the S&P 500 on December 21st. Now, that’s huge news.  Tesla’s outstanding shares as of today stands at over 900M shares with a market cap above 400B. 

Here’s my view on why you should choose Tesla over NIO:

1. Elon Mush – The CEO and founder of Tesla (The Boring Company) and SpaceX. First of all, he’s a go-getter, visionary, and the first to even believe in manufacturing EV’s on the large scale. While the entire world was against him and his dreams of scaling the product, a handful of people always supported him. Fast forward, just look at Tesla today, its created millionaires for believers and stock split (5:1 in July)

2. Tesla’s product line is robust – Tesla is not just a car company. It’s a technology company. There’s no other company in the world which does what Tesla does, you have the Tesla Insurance, Auto-Pilot, Robo-Taxis, Tesla Solar, Tesla Service, Tesla Apps and an Amazing Product line up of EVs – Model S, X, Y, Cybertruck, Roadster etc. So, when you’re buying one share of Tesla, you’re buying a piece of the overall portfolio. Isn’t that amazing? 

3. Tesla has already proved to the world – Tesla was recently added to the S&P 500 (a couple of days back) and has consistently delivered profitable quarters with excellent gross profit margins of close to 27%. 

4. Tesla builds everything ground up – they do not outsource anything to anyone except the batteries for Panasonic. Everything else is in-house built and efficient. 

5. Tesla Gigafactories in production – Tesla has a number of Gigafactories still ramping up for production in 2021. (currently, in development or construction, see the investor’s relations page for full details). Once you have these factories ready, it’s just a matter of time before you’ll see the number of vehicles jump up again. With the Shanghai plant, Tesla was able to deliver vehicles in a matter of 10 months from scratch. Now, that’s commendable. Also, with every new factory, Tesla tries to cut down the costs further as they learn more about increasing efficiency. 

6. Tesla’s Battery Business is huge, next to none.  It’s just getting started. (Million-mile battery)

7. Tesla’s Solar Business is just getting started. (Again, it’s going to be HUGE!)

8. Tesla is yet to produce the Model Y in a China Shanghai factory. 

9. Tesla is a brand and more than just a car company that people love just like Apple. Tesla will always remain the big daddy of the EV world. They are always the first to do things in the EV space and will continue to do so exploring new markets. 

If you’re a Tesla Fan or Interested/own Tesla stock, I highly recommend you to follow Rob Maurer from the Tesla Daily YouTube Channel or his podcasts. He is very genuine and accurate in the information he provides. 

Why Should You Buy NIO Over Tesla? 

A couple of reason why you should probably buy NIO over Tesla: 

1. China, China and China – China has over billion+ people and wants to move electric by 2025 (20% of the new cars sold), which is equivalent to 6 million cars on the road. Even though there are 100’s of EV companies in China such as XPENG, BYD and NIO, NIO is the only EV car company that is inching towards profitability and has gross profit margins of 14% which is amazing. (14 cents loss per share in the Q3 recently). 

2. NIO has a unique swappable battery technology. What it does is, once your car runs out of charge, you just have to visit one of the swappable battery stations and you’ll be out within 3 minutes with a new battery. Currently, NIO has over 150+ battery swappable stations and looking at extending it to more places in 2021. Amazing right?

3. NIO is loved by the Chinese people and the Government. (NIO is backed by the Hefei Government, NIO China entity)

4. NIO is a luxury brand in China with multiple NIO houses and NIO power. This is very similar to the Apple store experience in the US which is a cult on its own. 

5. NIO has two sedans lined up to compete with Tesla’s Model 3. Model 3 is Tesla’s #1 best selling car at the moment in China. NIO is yet to enter the sedan market. So huge potential there. Right now NIO sells the ES8, ES6 and EC6 which are premium SUVs. 

6. NIO, which is only a couple of years old is already inching towards profitability and the Q4 vehicle numbers should be between 16,500 – 17,000 (which is up from 12,500 in Q3, per Nov, 17th, 2020 report). The more they sell, the better the operating margins will be at scale. From January 2021, NIO plans to increase the production numbers to 7,500 cars per month or 90,000 vehicles per year. 

7. NIO is made for China, consider NOMI, NIO’s own personal AI assistant just like Apple’s Siri, its innovative and fantastic for the local crowd. 

8. Chinese Government’s subsidy to companies such as NIO with swappable batteries will further increase sales, bringing down the cost along with BAAS (Battery as a service). 

9. NIO is also planning to enter Europe, its first venture outside China in Q2, 2021. 

10. NIO has already launched the BAAS (battery as a service) and is working on a 150kW battery. The first of its kind. Now, BAAS is a subscription-based model that will reduce the upfront vehicle costs and is recurring revenue for NIO’s revenue. 

11. China’s EV market is massive and NIO is already right up there. Remember, being first matters. Just like Tesla, NIO doesn’t advertise, the sales are increasing through referrals and product quality. NIO is already a winner in China. 

12. NIO follows what is similar to Apple. They design the product and bring in the technology, but own no factories. They outsource the manufacturing to JAC in China, who build the cars. What is interesting to note is that NIO is able to increase operating profits by double digits by doing so. As the production ramps up, the operating margins will jump up to 20s% easily. Right now it’s at 14%. 

13. NIO is working on its own AutoPilot software with Intel’s Mobileye. 

If you’re a NIO fan and want to follow the company, for genuine updates related to NIO, you can watch Financial Courtside Youtube channel.

My Thoughts On which one you should buy – Tesla or NIO

Look, it’s an individual choice. I am not here for any recommendations. I can only share my knowledge. 

While China’s economy is booming more than ever. I believe we are just getting started with the EV Era. There’s plenty of room to grow still. 

Starting in 2021, Tesla will scale up to deliver more than 1.2 million cars worldwide (Berlin, Texas and Shanghai – For model Y). NIO is aiming to hit the 150,000 car mark by the end of the next year. NIO can easily hit the 150K mark in China alone. 

I’m quite not sure if NIO will be successful outside of China, especially in Europe. Whereas with Tesla that’s not the case. Tesla is already a well-known brand and the #1 Car Company in the world by market cap. Tesla’s market cap is greater than Toyota and BMW. 

Tesla’s brand penetration in the Global market is rather easier than NIO.  But the interesting part is NIO doesn’t need Europe or America to scale its production. The Chinese market alone is enough for NIO to smash the record and consistently grow. NIO is a local hero and that too in China where it matters. 

NIO also faces immense competition from XPENG, BYD and Li auto companies along with hundreds more. So, it’s not a guaranteed success either. While XPENG is backed by Alibaba their cars are extremely popular in China as well. 

One thing to note here is, while Tesla is currently topping the vehicle sales in China with increasing battery charging stations, it will be interesting to watch the space here with NIO’s swapping technology. 

Ultimately, I really think both the EV companies will do extremely well going forward. 

Along with Tesla and NIO, there are many other local players in China including XPENG, BYD etc. The Chinese market is crowded with EV car companies. But NIO has the advantage of the cash and balance sheet. 

Final Words

While I am particularly bullish on Tesla and NIO. I’ll give a slight edge to Tesla here. 

Tesla’s more than just a car company.

Tesla is a proudly American, technology company (more than just cars) and if you are willing to hold the shares for the next 10 years, It’ll easily 10X from where it is now. 

Tesla’s a safer bet compared to NIO. I can vouch for that. 

But, if you want to, you can probably invest in both the companies as per preference.  

Thanks for reading! Let me know your thoughts and comments below. 

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