It's no secret that electric vehicles (EV) are coming and will displace internal combustion engines in a big way. With many major automakers planning to completely phase out the latter, demand will rise as long as consumers want to own cars and trucks.
For investors, that means an opportunity to invest in a sector that is just in its initial stages of growth. But not all EV companies will succeed. And on top of that, many have valuations that could keep them from being winning investments for years to come. Two that have at least proven to be successful in both scaling production and attracting plenty of customer demand are Nio (NIO -3.16%) and Tesla (TSLA -3.76%). For long-term investors wanting exposure to the sector, there is data to show they may be the best bets to balance risk and reward potential.
Nio began delivering its new ET7 luxury electric sedan in March, 2022. Image source: Nio.
Right places at the right time
There's good reason Nio's home market of China is where Tesla built its first manufacturing facility outside the U.S. And Nio itself is now expanding to another one of the biggest EV markets in Europe. Not coincidentally, Tesla just opened its first gigafactory there, near Berlin, in March. China and Europe are expected to be the largest EV markets for years to come. The International Energy Agency (IEA) estimates that those two regions will still make up 65% of total EV sales globally in 2030.
Data source: International Energy Agency Global EV Outlook 2021 report. Chart by author.
Expanding quickly
Nio entered the European market in 2021 by establishing its business in Norway. By the end of 2022, the company expects to also be making deliveries into Germany, the Netherlands, Sweden, and Denmark. It has worked to double its manufacturing capacity to be able to produce up to 300,000 vehicles annually at its existing plant in China. That's just part of its five-year plan that includes NeoPark, a smart electric vehicle industry park that will again more than double its annual production capacity.
For its part, Tesla has opened a gigafactory in Germany that will supply Europe, allowing its Shanghai plant to focus more on the growing Chinese market. Tesla currently supplies European customers from its China facility. That manufacturing facility, along with its fourth in Texas that also just celebrated a grand opening, will accelerate its production growth even faster. Tesla showed in its most recent quarter that it can successfully navigate headwinds from supply chain constraints with another strong quarter of production.
Tesla's new factories will spur even faster production growth.
While Nio isn't anywhere near the production level that Tesla has achieved, there's no reason to think that it can't continue its production ramp and fill its capacity with the strong demand expected to continue in China and Europe. Below is the trailing-12-month (TTM) delivery data since the fall of 2020.
Data source: Nio financial releases. Chart by author.
Nio also touts its proprietary technology, including unique battery swap stations. That subscription service allows customers to effectively buy EVs without paying for the batteries, to save upfront costs. The battery swap stations install fully charged batteries in approximately three minutes, making it even faster than recharging drained batteries. Nio is reportedly in talks to license that technology to competing EV makers too.
Both Tesla and Nio look to be positioned to continue ramping up production of their EV products to satisfy growing demands in the markets they focus on. For investors looking for long-term exposure to the electric vehicle sector, Nio and Tesla both fit the bill.
