Published on August 16 2018

Why You Shouldn’t Underestimate This Chinese Startup

By Justin Spittler, editor, Casey Daily Dispatch

Tesla shareholders should be worried.

I don’t say this because CEO Elon Musk may not have “funding secured” to take the company private… or because the Securities and Exchange Commission (SEC) might come down on the electric car maker… or even because two of its biggest institutional investors are pulling out.

No. I say this because U.S. investors will soon have a new way to play the electric vehicle (EV) revolution.

• NIO is about to go public…

NIO is a Chinese electric car company.

On Monday, it said it plans to go public on the New York Stock Exchange (NYSE). It hopes to raise $1.8 billion in its initial public offering. That would make it the second biggest U.S. listing by a Chinese company this year.

Now, that’s a fraction of Tesla’s current valuation. But that doesn’t mean you should underestimate NIO.

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•  You see, China is the world’s biggest EV market…

And by a wide margin.

According to Forbes, 579,000 electric vehicles were sold in China last year. That’s nearly three times more than the 198,350 EVs that were sold in the U.S. in 2017. Not only that, the Chinese EV market is growing twice as fast as the U.S. market.

This boom has just begun, too. In fact, China is on track to sell more than 1 million EVs this year. By 2020, the Chinese government is targeting 2 million annual EV sales.

•  In short, China will continue to dominate the EV market…

And NIO is in a prime position to take advantage of this opportunity.

And it has the support of the Chinese business community.

The Alibaba Group, Baidu, and Tencent are all investors in NIO. Those are not companies you want to bet against.

But that’s not the only reason you should take NIO seriously.

•  NIO is on the right side of the trade war…

In fact, Forbes reports that the NIO ES8, its high-performance electric SUV, “retails for less than half of the new, tariff-adjusted price Tesla is charging for the Model X in China.”

That’s a huge competitive edge, and I expect it to get even sharper as the trade war between the U.S. and China intensifies.

In short, there’s a lot to like about NIO. But that doesn’t make it a “no brainer” investment.

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• NIO is a startup…

The company is just four years old… It only has two vehicle models so far: the EP9 supercar and the mid-priced ES8. And it doesn’t have a nationwide charging network like Tesla does.

Perhaps more importantly, the company isn’t making money yet. It brought in just $7 million in revenue during the first half of this year… and lost about $503 million during that period.

Of course, Tesla hasn’t booked a single annual profit in its 15-year history. And that hasn’t stopped investors from bidding its stock up to an astronomical valuation… but I digress.

My point is that NIO could soon pose a major threat to Tesla in China. And it’s not the only car company going after the Silicon Valley electric car maker.

• Every major car company in the world is “going electric”…

As I showed you earlier this year, Ford and General Motors are vying for a piece of this rapidly growing market, too.

European car makers are also entering this market aggressively.

Daimler AG, Europe’s second-biggest car maker, plans to spend at least $11.7 billion developing its own EVs.

Then there’s the Swedish auto giant Volvo. It plans to spend $40 billion developing its own EVs between now and 2030. Eventually, it plans to offer more than 300 electrified models.

These companies have more capital, experience, and manufacturing capacity than Tesla. And they’re actually making money.

That said, these companies are reinventing themselves as we speak. They’re shifting away from traditional vehicles to EVs.

That transformation won’t happen overnight. In some cases, it will take many years before these legacy car makers become true electric car makers.

But don’t worry. You won’t have to wait until then to profit off this megatrend.

• You can speculate on the metals that make EVs possible…

I’m talking about nickel, copper, and lithium.

As I’ve said before, demand for these metals should soar, thanks to the EV revolution… And for a simple reason: Electric vehicles are built differently.

For example, the average electric car requires 330 pounds of copper.

That’s four times as much copper as a conventional car requires. An electric bus, on the other hand, can require as much as 814 pounds of copper.

In short, the EV revolution simply can’t happen without these metals. But the typical investor hasn’t connected these dots yet.

They think the only way to profit off this revolution is with electric car makers. That’s why Tesla’s trading at a nosebleed valuation, despite its massive problems.

Of course, it’s only a matter of time before the average investor puts it together. When that happens, watch out—these metals should explode in value.

So consider speculating on these new strategic commodities while they’re still cheap. The best way to do this is with the companies that mine these commodities.

Our in-house commodity expert Dave Forest is also bullish on the key metals that go into EV batteries. If you haven’t already, make sure to read his new essays on each metal—and how to position yourself—below:

As always, when speculating, never bet more money than you can afford to lose. And take profits as they come.

Regards,

Justin Spittler
Istanbul, Turkey
August 16, 2018

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Reader Mailbag

Which of the key metals that goes into these EV batteries are you most interested in learning more about? Let us know right here.


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