NIO (NYSE: NIO) shares have come down a long way recently. A little under three years ago, shares in the Chinese electric vehicle (EV) manufacturer were trading above $60. Today, however, they can be snapped up for just $8.
Given this huge fall, many investors are wondering if the shares could provide big gains from here. Some investors are even wondering if the stock could provide Tesla-like returns over the next decade.
Tesla’s 25x gains
Over the last 10 years, Tesla shares have produced extraordinary returns.
A decade ago, the shares were trading for around $9 (accounting for the numerous stock splits since then). That means that a $5,000 investment back then would be worth around $123,000 today – roughly 25x the initial amount.
The thing is though, Tesla has a pretty unique story.
You see, for much of that 10-year period, Tesla was the only company with decent EVs on the road (it released its Model S in 2012 – well before rivals were getting serious about EVs).
As a result of its first-mover advantage, it was able to capture a huge amount of market share.
And it could sell its EVs at almost any price it wanted to. It didn’t have to worry about lowering its prices to compete with rivals.
Meanwhile, for much of that period, interest rates were at rock-bottom levels. As a result, buying a new EV was cheaper than today.
On top of this, in the low-interest-rate environment, investors were far more forgiving of growth companies with no profits.
A different backdrop
Now, when I look at NIO shares today, I see a very different backdrop.
For a start, the company is facing a lot of competition.
In China, it’s up against the likes of BYD, Xpeng, SAIC Motor, Volkswagen, and Tesla. And other companies’ EVs are far more popular than NIO’s.
Meanwhile, in Europe , it’s up against BMW, Mercedes-Benz, and Audi, which all have slick new EVs.
As a result of all this competition, it has had to lower its prices.
Secondly, interest rates are much higher today than they were a decade ago.
This has implications for EV affordability and sentiment towards the stock (NIO is not expected to be profitable this year or next).
The outlook
Now, the company is seeing decent revenue growth at the moment.
This year, revenue is expected to come in at around CNY 63bn versus 49.3bn last year. That would represent growth of nearly 30%.
Next year, analysts expect revenue of CNY95.5bn (growth of around 50%).
So, the growth story appears to be intact.
And with a market cap of just $13bn (versus $695bn for Tesla), there could be gains for NIO going forward.
However, I would be very surprised if the stock was to generate Tesla-like returns over the next decade.
I just don’t think the set-up is right for NIO to be able to do that.
The post At $8, could NIO shares deliver Tesla-like returns over the next 10 years? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
Can NIO shares grow 5x in 5 years?
Could buying NIO shares at $7 be like investing in Tesla in 2010?
NIO or Tesla shares? Here’s what investing £1,000 in both 5 years ago would have made me
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
