NIO stock is below $10. Should I buy?

Electric vehicle stocks have been rewarding for some investors. If I had invested in it Tesla In the past five years, I have seen my money grow more than nine times over.

Better returns are being made between 2019 and 2021 by some shareholders in rival carmakers NIO (NYSE: NIO). But NIO’s stock began to fall sharply. With a stock price below $10 versus a 2021 high of over $60, is NIO now a cheap buy for my portfolio?

Runners and riders

I think most people agree that the electric vehicle market – which is already growing – is likely to grow strongly in the coming years. Estimates vary, but even at the lowest end of the spectrum, it’s hard to imagine that the size of the electric vehicle market ten years from now won’t be hundreds of billions of pounds, or more. Tesla only generated $81 billion in revenue last year.

But what is less obvious, as with any emerging industry, is the possibility of scale and division of profits. Some industries grow big but are not always profitable. Strong competition can reduce profit margins. I think there’s already evidence of that happening in the increasingly crowded electric vehicle space, with Tesla slashing prices on many of its cars this year.

There is also the question of how the industry’s profits will be divided. Will there be large groups of companies that can profit, as in sectors like property and food production? Or will the electric vehicle industry evolve like the car industry in the twentieth century, with hundreds of local companies giving way to a handful of global giants with the economies of scale needed to make big profits?

Is NIO an outlier?

So far, the answer to that key question remains unclear, in my opinion. But in principle, I think the possible answer is clear enough to invest in the industry. Tesla is already profitable and has several competitive advantages. The current stock price is not attractive, but at the right price, I would consider adding Tesla to my portfolio even as the industry continues to grow.

What about NIO?

NIO has advantages, from a premium brand position to a strong position in a market with great potential such as China. The battery exchange network also differentiates it from Tesla.

However, is NIO an industry leader or is it still in the pack of companies racing to expand production of electric vehicles? Last year’s revenue was less than a tenth of Tesla’s, at $7bn. The company remains deeply loss-making, with $2.1 billion in red ink last year.

There is no obvious bargaining

Now, I don’t see NIO as a good business. It might be one, but I have yet to prove it.

So, even though NIO shares are trading below $10, that in itself doesn’t make it a bargain.

To be a bargain for my portfolio, I have to feel that the price is reasonable below what I see as the long-term value of the firm. I feel that the long-term value remains to be judged, so I won’t be buying NIO stock anytime soon.