At the start of 2016, Tesla shares were priced at just $14. Fast forward to 2023 and the shares have risen just shy of 1,600%! For context, that means if I had invested $1,000 in 2016, it would be worth a whopping $16,000 today. Furthermore, if I sold out at the November 2021 share price high, that number would look more like $30,000.
Tesla’s 2016 price was not far off the level that Chinese EV manufacturer NIO (NYSE: NIO) has been trading at in 2023. Although the shares have recently dipped to just $7, they were trading above $15 in August. The stock also peaked in 2021 at $61.
NIO has often been touted as a company with the potential to be a prominent player in the growing EV market. Considering this, does it have the potential to match Tesla’s astronomical growth? Finally, and most importantly, if this is the case then is now the right time to buy? Let’s take a closer look.
Turbocharged growth
One of the key drivers behind Tesla’s astronomical growth was its ability to deliver solid results. NIO seems to have ticked this box so far. The company showcased stellar growth in 2022, clocking revenues over $6.5bn, marking a 37% surge from the previous year. This meteoric rise underscored NIO’s ability to grab a larger piece of the EV market pie and effectively compete with established players.
In its most recent Q3 results, NIO announced sales of $2.3bn, a 46% rise from Q3 2022 and 142% rise quarter on quarter. Vehicle deliveries rose by a similar amount compared to both periods.
Although NIO remains loss-making, I am comfortable with the ‘scale to profit’ method. In fact, this is exactly what Tesla did before turning profitable in 2020. Essentially, the company uses debt to turbocharge its scale, and when it finally delivers profit, it delivers big.
A long way to go
That said, this use of debt becomes a problem in high-interest-rate environments. Given the recent hike in global interest rates, it doesn’t bode well for NIO given that it currently has a debt load above $4bn.
China, NIO’s home turf, hasn’t been immune to these challenges. In September, one of its major property developers, Country Garden, defaulted on dollar bond interest payments, sparking concerns about the country’s economic well-being.
More widely, when comparing NIO to Tesla I’m just not convinced. A big part of Tesla’s success is due to Elon Musk’s inspired leadership. I don’t see this with NIO, whose CEO is much more reserved. I also think the current macroeconomic headwinds will present real challenges for NIO. They’re something Tesla never had to contend with.
For these reasons, I’m doubtful that NIO will exhibit the same astronomical growth as Tesla. Considering this, I won’t be buying the stock today.
