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He tesla (NASDAQ:TSLA) stock price has largely held up as NIO stock has plummeted.
Both reached peaks in 2020. Since then, NIO has fallen a lot, while Tesla reached greater heights.
Tesla has fallen again. But it is still up 800% in five years, while its Chinese rival is down 23%.
Different stories
How is it possible that these two stocks with so much in common perform so differently?
Do they really have that 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 increase. Revenue growth forecasts also look good. Meanwhile, NIO continues to generate losses. And its sales growth is slowing as margins come under pressure.
Furthermore, only one of them operates in a free and open market, in a country that is actually doing quite well (regardless of what some loud politicians say).
Valuation
The lack of earnings on NIO makes it difficult to value it. But Tesla has been making profits for a few years. This makes assessment much easier and also reduces risk.
That said, the stock doesn't look that cheap.
Forecasts suggest a great price-to-earnings (P/E) ratio of 66 for this year. It has been much higher in the past, of course. And since then, rapid earnings growth has slashed the P/E.
New growth forecasts would reduce it to 36 by 2026. And for Nasdaq growth stock standards, I'd say they're even starting to look cheap.
Slower demand?
My big concern is the demand. The current valuation of the shares seems to assume that demand will continue to grow strongly in the coming years. But so far it has been led by the pioneers in the consumer market.
And I think greater acceptance of electric vehicles among those who see driving as simply a utility could be a little slower. In fact, very few countries are even close to having the necessary infrastructure.
Something else worries me, and it's because of billionaire investor Warren Buffett. He once pointed out that the early pioneers of aviation were not the ones who made a lot of money.
Is it likely that the world's vast array of motor manufacturers will end up cornering the lion's share of the electric commuter vehicle market in the long term? There has to be a good chance.
Oh, and Elon Musk's increasingly erratic behavior can't help.
Still a buy?
Still, I think Tesla could be a good buy now. Unlike the aviation pioneers, Tesla has developed much of the necessary technology and owns quite a bit of intellectual property.
In addition to being a car manufacturer, it also supplies crucial parts to the rest of the industry. Solar generation, battery storage… its products extend well beyond the electric vehicle market.
While I think the high valuation is the biggest risk, Tesla's stock price is down 25% so far in 2024.
I think it could be a great growth stock that we would consider buying if we see further weakness in the share price.
