Nio’s (NYSE:NIO) stock rally is unusual because the company reported dwindling cash levels. It expressed optimism that it will find funding. So, markets are ignoring the bankruptcy risks the company faces. Very likely, the Chinese government will introduce rules that ease costs on EVs, driving demand higher.
Nio faces competitive threats from Tesla (NASDAQ:TSLA). Tesla completed a gigafactory installation in China and is now selling its EV to Chinese consumers. So, why should Chinese buy Nio EVs when Tesla has a better reputation and is seen as a premium brand? Tesla stock appears headed to $500 a share. Last week, its $86 billion market capitalization exceeded the total of both General Motors (NYSE:GM) and Ford (NYSE:F) combined.
Nio addressed the weakening cash flow by saying that it will save more on costs, sell more EVs, and raise additional capital. And just as Tesla loses money most of the time, Nio will do the same for several quarters. It needs to reach economies of scale before investors see profits.
Your Takeaway
Nio stock is a gamble and a trade. Be wary of holding the stock for too long. Tesla is still the favorite and profitable trade for those who held the stock throughout the last year.
Disclosure: The author holds Ford shares.
