I explained why it can’t be Tesla last year. After a massive infusion of government capital, Nio is mainly a high-end brand for JAC Motors, a government-backed company that makes the car in Hefei. JAC makes a full range of vehicles. Think of the Nio as its Cadillac.
Yet Nio stock is still priced a lot like Tesla. It will open today at around $37. That’s a market cap of around $62.5 billion for a company that had sales of about $2.4 billion last year. Tesla now has a market cap of $650 billion on 2020 revenue of $31.5 billion. On a price to sales basis, Nio is selling for 26 times revenue, Tesla for 20.6 times revenue.
It’s true that, because of its smaller size, Nio is growing faster than Tesla. Much fuss was made recently when it rolled its 100,000th vehicle off the JAC line. While the latest ES8 does offer a lower price point than earlier models, it’s nothing like the EP9 supercar on which Nio made its name. It’s not for the racetrack.
Nio also faces more competition than Tesla ever dreamed of having, even within its niche. XPeng (NASDAQ:XPEV), which unlike Nio has its own factory in Guangzhou, delivered 5,102 cars in March, against Nio’s 7,257.
Nio’s total was 300% higher than during the same month in 2020. But both Nio and XPeng were dwarfed by the 16,301 electrics sold by BYD Motors, which started in batteries and is backed by Berkshire Hathaway’s (NYSE:BRK.A) Warren Buffett. BYD also sells hybrid and gas-powered models.
The Size Problem and Nio Stock
Successful car manufacturing is about achieving and maintaining scale, necessary to keep costs down.
Nio’s lack of scale means it will have trouble meeting its second-quarter goal of 7,500 cars, due to a global chip shortage.
There are indications investors are catching on. Nio stock peaked at more than $60 in February and is now down by more than a third.
Tesla has achieved scale. It is delivering 10 times more cars than Nio each month, and it continues to do well in China. Tesla has begun taking bookings for its Model Y, made in Shanghai, which is expected to outsell the Nio.
The Bottom Line
The Nio is a Cadillac among electric vehicles in China. Not enough Chinese drive Cadillacs.
Many analysts think of electrics as just gas-powered cars with a different power train. They’re not. They’re going to be increasingly computer-controlled. Many are going to be utility vehicles, like delivery vans. Even big car makers like General Motors (NYSE:GM) and Volkswagen (OTCMKTS:VLKAY) see transportation becoming a service, rather than remaining a product.
Scale can help today’s electric makers evolve with the market. Tesla has scale. JAC has scale. But Nio is just a small part of JAC. You’re not getting JAC when you buy Nio, you’re just getting the top end of its product line.
When investors realize where the electric car revolution is taking us, there will be a reckoning. JAC may through it, but I don’t think Nio stock will.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in stocks mentioned in this story.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.