Investors Are Split Between Nikola and NIO in Race for the Next Tesla

Many investors think that 2021 will be a great year for the electric vehicle industry. Although Tesla has emerged as the undisputed market leader, Nikola and NIO are competing for its crown. Will Nikola or NIO be the next Tesla?

Tesla has four electric vehicle models on the market. Its car prices range from $36,000 for the budget Model 3 to about $82,000 starting price for Model X. Currently, Tesla is focused on expanding its market, including its entry into India.

When it comes to investing in electric vehicle stocks, investors are spoiled for choice. Tesla, Nikola, and NIO are well-known names in the space. Other notable names include Xpeng, Li Auto, and Fisker.

The interest in electric vehicles has soared and growth prospects for companies like Tesla, Nikola, and NIO look brighter than ever. First, governments around the world are enacting regulations to encourage electric vehicle purchases as part of their efforts to counter climate change. 

In the U.S., President-elect Biden’s promise to spend $2 trillion on climate programs has excited the electric vehicle industry. Many investors expect a huge chunk of the climate fund to go to developing an emission-free public transportation system, where electric vehicles will be at the center. 

The falling cost of electric vehicle components is making the vehicles more affordable, which drives the adoption and sales for manufacturers. The government support and the increasing affordability of electric vehicles explain why the global electric vehicle market is on track to reach $803 billion by 2027 from $162 million in 2019. 

Volkswagen CEO Herbert Diess predicts that an automaker will be the world’s most valuable company in 10 years. Tesla has long been investors’ favorite EV stock. 

However, Tesla’s valuation has risen high and fast to the point that Elon Musk has expressed concern about it. In that situation, many investors are looking beyond Tesla for the next success story in the electric vehicle space. There’s debate about whether Nikola or NIO is the best bet.

Nikola is an American company that focuses on making electric trucks. The company looks to disrupt the more than $400 billion a year heavy-duty global trucks market. However, Nikola still doesn’t have a vehicle on the market.

NIO is a Chinese company that wants to dominate its domestic market. A major advantage for NIO is that China is the largest vehicle market, so the growth opportunity is enormous. The Chinese government supports the electric vehicle industry. However, NIO isn’t making profits yet.

Nikola and NIO may not have compelling financials right now, but they have incredible growth opportunities based on their target segments and markets. Investors can't decide whether Nikola or NIO can replicate Tesla’s success.

Nikola stock gained about 50 percent in 2020. It looked like Nikola would have a great year after it debuted through a SPAC deal. However, the stock crashed after a prominent short-seller published a report alleging investor fraud at Nikola. 

Following the report, Nikola’s founder and chairman Trevor Milton resigned. Scaling down the GM deal also took some pressure from Nikola stock. Initially, GM agreed to take a substantial stake in Nikola and help produce its electric pickup. Later, GM decided to settle for a limited partnership after the fraud allegations. 

What's next for Nikola stock? Wall Street shows that Nikola could rise to $47 in 2021 in a bull case. However, the stock could decline to $15 if investors get frustrated. Investors could sour quickly if the company’s production plan faces problems.

NIO stock gained more than 1,100 percent in 2020, which made it the best performing major EV stock. Tesla stock rose about 700 percent in 2020. What next for NIO stock?

Wall Street shows that NIO could rise above $645 in 2021 in a bull scenario. However, the stock could drop below $100. NIO stock would soar if the company’s deliveries and profit margins continue to improve. Meanwhile, investors could sour on the stock if deliveries face problems and margins seem to deteriorate.

Besides Nikola, several electric vehicle companies have gone public through SPAC deals including Lordstown Motors, Fisker, and XL Fleet. More EV companies have SPAC IPOs planned. 

Nikola and NIO both have the potential to become the next Tesla because the electric vehicle market should be huge enough to support multiple successful players. 

The ability to purchase fractional shares through online brokers like Robinhood and Charles Schwab has made it possible for investors to get exposure to Tesla, Nikola, and NIO even with little capital. Investors who like looking for signals from experienced hands may want to note that early Tesla backer Baillie Gifford also has an investment in NIO stock.