In relation to electrical automobile makers, numerous investor consideration goes to Tesla. However Tesla is way from the one sport on the town. Rival Nio (NYSE: NIO) could promote far fewer automobiles, however it’s rising, has a sexy model positioning and makes use of battery swapping know-how that helps set it aside from opponents, together with Tesla. So, how would an investor have finished investing £2,000 into NIO inventory 5 years in the past?

Modest return and a really bumpy street

The reply is that they’d now be within the cash, albeit on a modest scale. Round £200 on a £2k funding, to be particular.

Over the previous 5 years, NIO inventory has risen 10%. That compares to a 651% leap for Tesla inventory in the identical interval.

As NIO doesn’t pay a dividend, that 10% can be the full return over the previous 5 years.

Given how the broader market has carried out throughout that interval, 10% doesn’t appear significantly thrilling to me.

Nonetheless, the street has been a bumpy one. Investing 5 years in the past and promoting lower than one  12 months later, in January 2021, an investor might have achieved a exceptional 1,526% enhance in worth. However somebody shopping for the shares from that investor at that time would now be sitting on a 93% paper loss.

It’s tough to worth fast-growing, loss-making corporations

Why has NIO inventory confirmed so unstable?

I believe this can be a basic instance of a development share in an rising business that traders battle to worth.

From the bullish facet, NIO has quite a bit going for it. Whereas Tesla’s (a lot bigger) gross sales volumes fell barely final 12 months, NIO grew its personal gross sales volumes 39% 12 months on 12 months.

2024 ended on a excessive, with December deliveries exhibiting a 73% year-on-year enhance. Final month was nonetheless very optimistic however year-on-year development fell again to a extra modest 38%.

NIO, like Tesla, has established a premium model. Its battery swapping know-how additionally presents an answer to a standard downside that irks electrical automobile drivers: restricted vary.

On the bearish facet, although, that vary downside is arguably going away of its personal accord as battery know-how improves. So NIO’s battery swapping might finish up being a expensive resolution to what anyway turns into a non-problem.

Regardless of robust gross sales development, NIO remains to be far behind rivals like Tesla and BYD, which means it lacks economies of scale.

In its most not too long ago reported quarter, the corporate misplaced round $721m. For a similar three-month interval, Tesla reported web revenue of $2.2bn.  

I can’t but make investments with confidence

That helps clarify why Tesla has a market capitalisation of $1.2trn, in opposition to $8bn for NIO.

I do discover numerous the bull case for NIO fairly persuasive. Over time, if the enterprise retains rising, develops higher economies of scale, and might show a pathway to profitability, I believe NIO inventory might transfer up — maybe quite a bit — from in the present day’s degree.

However, simply as I used to be not prepared to take a position 5 years in the past, nor am I in the present day.

I need to really feel extra assured that (like Tesla) NIO could make a revenue on a sustained foundation, earlier than I think about investing.