The Tesla (NASDAQ: TSLA) share price has been largely keeping up, as NIO shares have slumped.
Both saw peaks in 2020. Since then, NIO is well down, while Tesla went on to greater heights.
Tesla has fallen back again. But it’s still up 800% over five years, while its Chinese rival is down 23%.
Different stories
How can these two stocks with so much in common perform so differently?
Do they really have so much in common? They both make electric vehicles (EVs), so there’s that. But there are some big differences.
Tesla is making profits, as its sales volumes rise. Earning growth forecasts look good too. NIO, meanwhile, is still loss-making. And its sales growth is slowing as margins come under pressure.
Also, only one of these operates in an open free market, in a country that’s actually doing pretty well (whatever some vocal politicians might claim).
Valuation
The lack of profit at NIO makes it hard to put a valuation on it. But Tesla has been making profits for a few years. That makes valuation a lot easier, and also reduces the risk.
Saying that, the stock doesn’t look that cheap.
Forecasts suggest a big price-to-earnings (P/E) ratio of 66 for this year. It’s been a lot higher in the past, mind. And since then, rapid earnings growth has brought the P/E down sharply.
Further growth forecasts would drop it as far as 36 by 2026. And by Nasdaq growth stock standards, I’d say that even starts to look cheap.
Slower demand?
My big concern is over demand. The current stock valuation does seem to assume demand will carry on growing strongly in the coming years. But it’s so far been led by early movers in the consumer market.
And I do think wider uptake of electric vehicles among those who see driving as just a utility could be a fair bit slower. In fact, very few countries are anywhere near having the needed infrastructure in place.
Something else worries me, and it’s down to billionaire investor Warren Buffett. He once pointed out that the early aviation pioneers weren’t the ones that made the big money.
Is it likely that the world’s wide array of motor manufacturers will end up with the bulk of the commuter EV market in the long term? There has to be a good chance.
Oh, and the increasingly erratic behaviour of Elon Musk can’t help.
Still a buy?
Still, I do think Tesla could be a good buy now. Unlike the aviation pioneers, Tesla has built up a lot of the needed technology and holds a fair bit of intellectual property.
As well as being a car maker, it also supplies the rest of the industry with crucial parts. Solar generation, battery storage… its products extend a fair bit beyond the EV market.
While I think the high valuation is the biggest risk, the Tesla share price is down 25% so far in 2024.
I think it could be a great growth stock to consider buying if we see any further stock price weakness.
