Tesla vs. NIO Stock: Which is the Better Buy?
Tesla (NYSE: TSLA) is one of the largest companies in the world in terms of market cap, sitting comfortably in the top 10. While its share price has fallen considerably from its last peak at the beginning of 2022, it remains quite expensive. Meanwhile, NIO (NYSE: NIO) is a much more affordable stock and is priced at less than half its share price in November 2021. This article will cover Tesla vs. NIO stock and examine which one is a better buy.
Some investors and analysts feel Tesla stock is priced too high, and those concerns are not entirely unfounded. After all, Tesla’s P/E ratio is over 150. Compare that to General Motors (NYSE: GM) and Ford (NYSE: F), which have ratios of 6.20 and 3.6, respectively.
This has some investors turning to NIO, a company that was founded in 2014 yet already sells five production vehicles. But NIO has had a consistently negative P/E ratio since 2019, which indicates the company is losing money.
Tesla, on the other hand, has turned the corner into profitability, so it isn’t easy to say whether one is better than the other. Nevertheless, we’ll look closer at Tesla vs. NIO stock.
NIO Stock Analysis
Founded in 2014, NIO has scaled up production more rapidly than Tesla, delivering over 90,000 vehicles in 2021, just its seventh full year. Analysts expect its stock to go up in price, and that has some investors buying up shares. But it isn’t all positive for the Shanghai-based electric vehicle maker.
The biggest concern is that NIO has been losing money. In Q1 2021, its net income was negative ¥4.87 billion, the equivalent of a $768 million loss in a single quarter. While the company isn’t profitable at the moment, that doesn’t mean alarm bells should be ringing. By comparison, it took Tesla 18 years to be profitable.
In terms of how analysts and investors feel about NIO stock, they don’t appear to agree. One analysis forecasts a more than tripling of its price in the next year. With such a low price, it isn’t tough to imagine that scenario playing out. But investor sentiment is weak in the short, mid and long-term. NIO stock is also overvalued at the moment.
Keep reading for more on Tesla vs. NIO stock.
Tesla Stock Analysis
For American investors, Tesla doesn’t need as much introduction. As mentioned, Tesla has been consistently profitable after losing money for years. In fact, for Q4 2021, it reported a profit of $2.32 billion, which is up more than 750% year-over-year (YOY). This was also its second quarter in a row with a double-digit net profit. While its P/E ratio remains high, it has been dropping every quarter.
Like NIO stock, though, Tesla stock is seen as overvalued. Likewise, investor sentiment is negative. Forecasts also project a median increase of greater than 30% in Tesla’s stock price. While that seems modest compared to NIO, that would be an increase of more than $200 in Tesla’s share price.
Overall, Tesla appears to be a safer bet than NIO right now, particularly because Tesla is profitable. However, NIO stock can offer a greater reward (albeit with more risk) due to its low price.
Tesla vs. NIO Stock: Can NIO Compete With Tesla?
NIO may be able to compete with Tesla, but it has some work to do before the company can make that a reality. In December 2021, Tesla sold over 70,000 vehicles, while NIO made a little over 10,000 sales. By that measure, Tesla’s biggest competition in China was not NIO but BYD, which sold more than 92,000 vehicles in just one month.
It’s worth noting that BYD Auto was established in 2003, the same year as Tesla. Meanwhile, NIO has scaled up quickly. So, when analyzing Tesla vs. NIO stock it’s worth noting that it may be able to compete with Tesla in the future. However, it won’t do so in the U.S. until at least 2025, when we might see NIO cars sold in America.
Is NIO a Good Buy?
When evaluating Tesla vs. NIO stock, NIO can be a good buy. However, it depends on your strategy. As noted previously, Tesla is likely a safer buy as it has (finally) shown it can consistently turn a profit, something NIO has yet to do. However, TSLA’s high price means that a tripling or even doubling in price in the next year isn’t something we can expect.
But a tripling in price is what one analysis projects for NIO shares. With a price under $20 at the moment, that seems reasonable. All of this is to say that while NIO must cross into profitability to be financially sustainable, it is a higher-risk, higher reward investment for now.
If you want a safer investment that is reasonably likely to yield decent returns, TSLA remains a strong choice. NIO has more room to increase in price. But of course, there is no guarantee it will appreciate considerably in the next year. Hence, the better investment here depends on your strategy and your overall risk tolerance.