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Why NIO Stock Is Up Today

By John Rosevear – Jun 9, 2020 at 2:29PM

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Traders eyeing Nikola's stock surge are wondering if NIO's next.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO -1.78%) were rising on Tuesday, a day after shares of start-up electric-truck manufacturer Nikola (NKLA) rose more than 100%, as traders sought other opportunities to ride a potential electric-vehicle boom.

As of 2 p.m. EDT, NIO's shares were up about 12.1%.

So what

There was no big news driving NIO's shares higher on Tuesday afternoon. Rather, it appeared that traders were buying NIO's stock in hopes that whatever lightning hit Nikola's stock on Monday might strike NIO's as well.

Is that a good bet? It's impossible to say. On the one hand, there are plenty of auto investors eager to find an emerging company that can duplicate the gains of Tesla's (TSLA -8.62%) stock over the last several years.

A blue NIO ES8, an upscale 7-passenger electric SUV.

NIO's just-revamped ES8 has good range and swappable battery packs. Image source: NIO.

On the other hand, Nikola -- a company with no revenue that won't hit $1 billion in sales until at least 2023 -- seems an unlikely choice given the intense risks that surround the electric-vehicle space.

Is NIO a better bet? Well, given that NIO has vehicles in production, enjoys growing consumer awareness in the world's largest electric-vehicle market, and has secured financial backing from economic-development authorities in one of China's auto hubs, it's arguably a blue chip next to Nikola.

Now what

That doesn't mean that NIO is a strong buy on its own fundamentals, of course. While it has had some early success, its total sales are still small and its burn rate is high. 

And while it hopes to capture a large share of the market for upscale electric vehicles in China, that remains a long shot. NIO will have to contend with a fast-growing list of competitors over the next couple of years, including Tesla itself, well-funded domestic rival Xpeng Motors, and global giants including Volkswagen (VWAGY 1.02%) and General Motors (GM 2.43%), both of which have vast dealer networks in China. 

Long story short: Trade carefully.

John Rosevear owns shares of General Motors. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
$15.49 (-1.78%) $0.28
General Motors Company Stock Quote
General Motors Company
$32.87 (2.43%) $0.78
Tesla, Inc. Stock Quote
Tesla, Inc.
$242.40 (-8.62%) $-22.85
Volkswagen Aktiengesellschaft Stock Quote
Volkswagen Aktiengesellschaft
$16.41 (1.02%) $0.17
Nikola Corporation Stock Quote
Nikola Corporation
$3.52 (%)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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