Electric cars

Why Cathie Wood just dumped Tesla for this hot EV stock

Why Cathie Wood just dumped Tesla for this hot EV stock

Famous investor Cathie Wood is a bull on electric vehicles (EV), as the industry matches its policy of investing in stories of disruptive growth and innovation, including autonomous technology. In a recent interview with BarronsWood even predicted that electric vehicle sales would grow from 4.8 million units in 2021 to 40 million units in 2026.

Wood owns several electric vehicle stocks, but the one that has stood out so far is the industry leader You’re here (TSLA 0.71% ). Tesla is, in fact, Wood’s largest holding – the stock was 7.54% across the Ark Invest family exchange-traded funds (ETFs) since March 28.

Yet that’s after Wood sold nearly 146,000 Tesla shares on March 25. The last time Wood sold shares of Tesla was in January.

What’s even more surprising, however, is the stock of EVs Wood purchased on the same day: Nio ( NI 3.16% ). the Ark Autonomous and Robotics Technology ETF (ARKQ 2.56% ) announced a transaction to buy 420,057 shares of Nio on March 25.

Image source: Getty Images.

Admittedly, reducing his Tesla position doesn’t necessarily mean that Wood’s conviction on the stock has diminished. Still, the fact that she bought Nio shares for the first time deserves a lot more attention from investors, as it confirms Wood’s belief in China’s EV stock.

Why Nio caught Cathie Wood’s attention

Wood’s interest in Tesla should come as no surprise. The company’s foothold in the electric vehicle industry is hard to match and even catch up, as Tesla already has nearly a million cars on the road and its sales have grown exponentially in recent years.

Tesla deliveries between 2012 and 2021.

Image source: Statista.

Still, the competition is heating up, and Wood apparently doesn’t want to miss an opportunity that EV companies other than Tesla can bring to the table. Nio is, in fact, often called the “Tesla of China” and has even said that it aims to sell better products than Tesla but at a lower cost.

The fact that Wood bought Nio shares just a day after the company’s fourth quarter and full year 2021 results release suggests something in the report caught Wood’s attention. I believe it’s the Electric vehicle maker’s growth plans.

Nio’s major projects

Nio expects to deliver 25,000 to 26,000 vehicles in the first quarter. That’s about stable sequentially at the lower end of the guidance range and reflects the severe supply constraints the company is facing.

Still, Nio isn’t as worried yet and has ruled out any plans to raise vehicle prices to pass the higher costs onto consumers for now. Tesla, on the other hand, recently raised the prices of its electric vehicles twice within days.

More importantly, despite the challenges, Nio is sticking to its plans to launch three electric vehicles this year. The company is on track so far, having started deliveries of its flagship sedan, the ET7, on March 28. Nio plans to launch its first SUV, the ES7, in the coming weeks and its midsize sedan, the ET5, later this year. .

Nio’s revenue is expected to increase as it expands its product portfolio. In 2021, Nio generated $5.6 billion in revenue supported by deliveries of 91,429 vehicles. And Nio has already set foot outside of China and is then targeting one of the world’s biggest EV markets: Europe. Nio will enter at least four countries in Europe this year.

A bar chart showing global plug-in electric vehicle sales in 2020 by region.

Image source: Statista.

In the long term, Nio plans to create a consumer brand to build affordable electric vehicles ranging from $30,000 to $50,000 per car.

Path to profitability

As a company with its sights set on two of the world’s largest electric vehicle markets, Nio’s growth potential is huge if it can deliver on its plans. Nio also has a strong competitive advantage over its peers that could give it an edge, especially in these times of inflation: its Battery-as-a-Service (BaaS) program.

BaaS offers potential customers the opportunity to save thousands of dollars by buying cars without batteries and instead paying a monthly subscription to swap and charge batteries on demand at Nio’s swap stations. As of March 20, Nio had 864 battery swap stations and 760 boost stations in China, according to the CnEvPost website focused on new energy vehicles (NEVs).

Nio’s agility was also on full display when she quickly listed her Hong Kong stock in early March as a threatens to see Chinese stocks delisted of the United States thoroughly.

More important again, Nio just said he could break even from the fourth quarter of 2023 and achieve its first full year of profits in 2024.

In an industry where increasing production profitably is a daunting task, Nio seems confident about his abilities. That’s what seems to have caught Cathie Wood’s attention, and she obviously bought the plunge into this hot electric vehicle stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.