IIt’s no secret that electric vehicles (EVs) are coming and will significantly replace internal combustion engines. With many major automakers planning to phase out the latter altogether, demand will increase as consumers want to own cars and trucks.
For investors, this means an opportunity to invest in an industry that is still in its early stages of growth. But not all EV companies will succeed. And on top of that, many have valuations that could prevent them from being winning investments for years to come. Two that have at least succeeded in scaling production and attracting strong customer demand are Nio (NYSE: NIO) and You’re here (NASDAQ: TSLA). For long-term investors who want exposure to the sector, there is data showing that they may be the best bets to balance potential risk and reward.
In the right places at the right time
There’s a good reason Nio’s home market of China is where Tesla built its first manufacturing plant outside of the United States. And Nio itself is now expanding into another of the biggest EV markets in Europe. It is no coincidence that Tesla has just opened its first gigafactory there, near Berlin, in March. China and Europe are expected to be the biggest EV markets for years to come. The International Energy Agency (IEA) estimates that these two regions will still account for 65% of total electric vehicle sales worldwide in 2030.
Nio entered the European market in 2021 by establishing its business in Norway. By the end of 2022, the company also plans to make deliveries to Germany, the Netherlands, Sweden and Denmark. It has been working to double its manufacturing capacity to be able to produce up to 300,000 vehicles per year at its existing plant in China. This is just part of its five-year plan that includes NeoPark, a smart electric vehicle industrial park that will more than double its annual production capacity.
Meanwhile, 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 Chinese factory. This manufacturing facility, along with its fourth in Texas which also just celebrated a grand opening, will accelerate its production growth even faster. Tesla showed in its latest quarter that it can successfully navigate the headwinds of supply chain constraints with another strong production quarter.
Although Nio is far from the level of production reached by Tesla, there is no reason to think that it cannot continue to ramp up and fill capacity with the strong demand that is expected to continue in China and Europe. . Below is the delivery data for the last 12 months (TTM) since autumn 2020.
Nio also touts its proprietary technology, including unique battery swap stations. This subscription service allows customers to efficiently purchase electric vehicles without paying for batteries, in order to save on upfront costs. Battery swap stations install fully charged batteries in about three minutes, which is even faster than recharging discharged batteries. Nio is also said to be in talks to license this technology to competing electric vehicle manufacturers.
Tesla and Nio appear to be positioned to continue ramping up production of their EV products to meet growing demands in the markets they focus on. For investors looking for long-term exposure to the electric vehicle sector, Nio and Tesla are both suitable.
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Howard Smith owns Nio Inc. The Motley Fool owns and recommends Nio Inc. and Tesla. The Motley Fool has a disclosure policy.
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