Chinese electric vehicle maker Nio (NYSE:NIO) has multiple positive catalysts, including the expected rapid growth of the Chinese EV sector and its sedans, which are quickly becoming quite popular in the huge Asian country. Moreover, the valuation of NIO stock is very low, and two reviews of its P7 luxury sedan that I found online are quite positive. At the same time, its battery-swapping system is a very attractive feature.
Still, Nio’s positive catalysts are not as strong as those of several of its competitors, the company’s autos reportedly lag when it comes to range, and its profit margins fell sharply last quarter. So although I believe that NIO stock may very well outperform the stock market going forward, I recommend buying the shares of its better-positioned competitors instead.
The Quickly Expanding Chinese EV Sector and Nio’s Popular Sedans
According to Statista, the unit sales of all EVs and plug-in hybrid vehicles in China are expected to climb 19% this year. Most of the growth is expected to come from EVs. As a result, for this year, Nio’s deliveries, like those of all leading EV makers, are likely to increase meaningfully.
Meanwhile, Nio’s electric sedans have quickly become rather popular since they were first launched about 12 months ago, as the automaker sold 7,175 of them last month, up from just 163 when they first launched about 12 months ago and 7,120 sedans in February. It seems likely that sedan sales will continue to increase as the country’s EV market expands.
Two Good Reviews and a Cool Battery-Swapping Program
The two reviews of Nio’s sedans that I found were very positive and enthusiastic. For example, one reviewer, referring to the appearance of the P7’s exterior, wrote, “Stunner.” The reviewer, CarNewsChina’s Will Sundin, added that the interior of the EV has a “premium minimalistic look,” while the EV also has comprehensive technology, Level 2 ADAS, and great driving speed. Will had owned the EV for three months when he wrote the review.
Upbeat on another one of Nio’s sedans, the Et7, was a writer called only “Sam,” whose review was published a year ago by ArenaEV. After test-driving the EV, Sam wrote that it is “a luxurious high-class sedan” which incorporates “the newest technology in autonomous driving.” Calling the EV’s exterior “impressive,” Sam referred to the interior as “spacious, refined, and modern” with “a futuristic feel.” Moreover, the EV’s technology is “very sophisticated,” while it drives “smoother… than other EVs,” the reviewer stated.
On the battery-swapping front, Sundin, CarNewsChina’s reviewer, reported that the system “is very convenient,” as long as the batteries provided to drivers “are charged and ready to go.” (It sounds like Nio may once in a while provide batteries that aren’t completely charged and ready for action). Moreover, by choosing the swapping option, Sundin saved $10,000 on the EV’s initial price, although he has to pay $136 per month for the service.
Range and Margin Issues
According to Sundin, the Pt7’s range is only 230 miles to 250 miles. Other EVs have a much longer range. For example, in Edmund’s tests, Tesla’s (NASDAQ:TSLA) Model Y has a range of 317 miles. And Sundin admits that “If you need long-range, then an NIO might not be the best choice.”
Meanwhile, Nio’s “vehicle margin” sank to 6.8% in the fourth quarter of last year, down from 20.9% during the same period a year earlier and 16.4% in the previous quarter. Moreover, the company does not expect its margins to approach their previous levels until the end of this year.
Other Automakers Are a Better Bet
Nio’s trailing price-sales ratio of two is attractive. But value investors looking for good EV plays are better off with General Motors (NYSE:GM) or Volkswagen (OTCMKTS:VWAGY), whose stocks are changing hands at bargain forward price-earnings ratios of 5.6 and five times, respectively.
Those looking for a rapid grower in the Chinese EV space should go with Li Auto (NASDAQ:LI) or BYD (OTCMKTS:BYDDF), whose vehicle sales are really taking off. And investors who want an up-and-coming EV name should consider Xpeng (NASDAQ:XPEV), which has great autonomous-driving technology, Rivian (NASDAQ:RIVN), which has a huge deal with Amazon (NASDAQ:AMZN) and reportedly makes all-around great electric trucks, or Arrival (NASDAQ:ARVL), which can reportedly make very affordable electric vans and just got a huge vote of confidence in the form of a merger with hedge fund Kensington Capital Acquisition.
In other words, Nio seems like a good company with limited potential, and there are much better EV names out there than NIO stock.
As of the date of publication, Larry Ramer owned shares of RIVN, XPEV, and ARVL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.