The Tesla of China is ‘an easy stock to steer clear of,’ investor says (NIO)

William Li China Nio

  • Nio, widely seen as the Tesla of China, is tumbling after its initial-public-offering highs.
  • Nio began to deliver its first volume-manufactured vehicle — the ES8 — to customers on June 28, and started to generate revenue this year.
  • “An unproven management team along zero experience in manufacturing cars makes this an easy stock to steer clear of,” said Mark Tepper, president of Strategic Wealth Partners.
  • Watch Nio trade in real time here.

Nio, widely seen as the Tesla of China, is tumbling this week, which echoes an investor’s bearish view.

“Nio’s not a stock we have any interest in,” said Mark Tepper, president and CEO of Strategic Wealth Partners, managing over $1 billion in assets. “An unproven management team along zero experience in manufacturing cars makes this an easy stock to steer clear of.”

Nio has gained 21% since the company’s initial public offering on September 12. Shares priced at $6.26 apiece, the low end of its range, causing the electric-car maker to fall short of raising the $1.8 billion it had sought. But one day after its lackluster debut, the stock soared 75%, sending its market capitalization above $12 billion — despite Bernstein analyst Robin Zhu assigning an “underperform” rating and saying he thinks a capital raise is coming in the next 12 to 18 months.

Now with the shares sliding from their post-IPO high, Nio’s market cap has dropped below $8 billion. But the company is still overvalued based on its sales, according to Tepper. “With $7 million of sales and an $8 billion market cap, we can’t justify owning it,” he said. 

The Tencent-backed electric-car startup delivered its first volume-manufactured vehicle — the ES8 — to users on June 28, and started to generate revenue this year, according to its IPO filing. Nio said it generated revenue of $6.95 million in the first half of 2018, and that it had 6,201 unfilled ES8 reservations by the end of August, for which non-refundable deposits had been made but customers could still cancel their orders.

And for Nio, scaling production may take some time. Tesla has suffered through production problems nearly every time it rolled out a new model. 

In July 2017, CEO Elon Musk warned Tesla would face manufacturing challenges for “at least six months of production hell” as it ramped up Model 3 production to 500,000 per year. The electric-car maker endured even larger production hell with its previous three vehicles, the original Roadster, the Model S sedan, and the Model X SUV, Musk told Business Insider.

“Look at Tesla’s recent struggles,” Tepper said. “That makes it even less attractive for us.”

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