From Detroit Muscle to Today’s EVs … Auto Innovation Fuels Investors’ Profits

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When I was kid growing up during the 1960s, the loud roar of a “muscle car” V8 epitomized “hip.” I can still hear, feel and smell the sensation of riding in my cousin’s Barracuda as he put pedal-to-the-metal to kick open the four-barrel carburetor that jolted me back into my seat and powered the car down a remote highway.

Car sitting outside with the sun behind it.

Source: Shutterstock

I dreamed of owning a car like that, as did many young kids at that time. Some us fulfilled that dream. I own a 1967 El Camino Super Sport with a 327 V8. The car does two things — and only two things — well.

It makes a lot of noise and it goes very fast in a straight line. I don’t ask it to do anything else.

People, especially 20-somethings, often say to me, “Wow! Cool car!” Just like I would say back in the 1960s.

But no child of my generation ever dreamed of owning electric vehicles. Those were called golf carts … you could find them puttering around leisure communities.

Who knew that a golf cart would one day become a Tesla and epitomize “cool” for an entirely new generation of drivers? And who knew that internal combustion vehicles would fall so far from cool that they would become uncool “world polluters” in the eyes of many upcoming generations?

But that’s the world as we find it today … and that world is opening up vast opportunities to electrify transportation. Tesla (NASDAQ:TSLA) may be a first-mover in electric vehicles, but it is hardly the only mover.

In fact, one Chinese electric vehicle maker has made one of 2020’s most impressive comebacks. Late last year, it looked like the stock was down and out. Shares had plunged from $10 to barely more than a buck, and it appears that the company was on the brink of bankruptcy.

However, contrary to the naysayers, the company was able to secure crucial investments from both local governments and a powerful private backer. With these funds in hand, the company rode out the novel coronavirus slowdown and is revving its engines again.

As I’m about to explain, this company is enjoying sharply higher sales now.

And while the stock has recovered significantly, it still looks cheap in light of the company’s tremendous momentum.

Tencent’s Star-Maker Ability With Electric Vehicles

Just like movie studios during the “golden era” of Hollywood gained reputations as “star-makers,” Tencent (OTCMKTS:TCEHY) possesses a similar skill in the corporate world. Thanks to the company’s timely tactical investments, it has made stars out of many businesses — such as Chinese food-delivery service Meituan Dianping (OTCMKTS:MPNGY). Less than two years ago, Tencent spent about $10 billion to buy 20% of that company. And today, that stake is worth more than $24 billion.

In this context, Tencent’s massive ongoing investment in electric car company Nio (NYSE:NIO) deserves our attention. In June, Tencent snapped up 1.68 million additional Nio shares for $10 million. That investment was a relative pittance, compared to Tencent’s previous investments.

Overall, Tencent had invested $510 million in Nio before its 2018 initial public offering. Subsequent to that investment, Tencent made a number of additional purchases, and it now owns 15.1% of the company. This makes Tencent the largest individual owner of Nio in dollar terms, and the second-largest holder in terms of voting rights. It trails only Nio founder and CEO William Li in that regard.

So far, however, Tencent doesn’t have much to show for those investments. In fact, Nio’s shares had been on a major losing streak since the IPO and have only recently started to recover. But if past is prologue, something good is about to happen at Nio. And we’re seeing signs of it already.

For one thing, Nio’s production rate of new electric vehicles is growing, and its losses are shrinking. The company recently revealed that it delivered 3,436 vehicles in May 2020, representing an outstanding 215.5% growth rate year-over-year. This should refute the idea that Nio bears had been peddling that the coronavirus had largely eliminated demand for the company’s products.

Also, Nio is a luxury brand within China, and it will take a while for it to sell large numbers of cars consistently. Still, 215% growth is an excellent stepping-stone. Think about it this way: Even if there’s no further growth, at the current 3,500 cars-per-month rate, Nio would delivery more than 40,000 cars over the next 12 months.

For perspective, that 40,000 cars annually rate of production is roughly one-tenth of Tesla’s output. And yet, Tesla’s valuation is currently almost 20 times higher than Nio’s. So if you value Nio and Tesla at the same level per car that they deliver, Nio’s share price would nearly double to almost $15 per share.

Bottom Line: Nio Is a Bargain Compared to Tesla

I make that comparison just for kicks, as there are clearly many other factors that influence Tesla’s and Nio’s valuations in addition to their production levels. Still, it should give you a sense of Nio’s upside if things go well. The company has been battling skeptics and a funding shortage for so long that investors lost sight of the electric vehicle maker’s blue-sky potential.

As we’ve talked about countless times here in Smart Money, technology is essential for modern life, which is why tech stocks are outperforming the rest of the market. While very few investors understand it, this gap between tech and the rest of the market — this “Technocasm,” as I call it — isn’t a new phenomenon.

It existed back when I dreamed of my loud, muscle car V8 … and it exists today as the younger generation dreams about the endless possibilities with electric and, ultimately, self-driving vehicles.

And the rate at which the Technocasm is widening isn’t slowing down. In fact, it’s accelerating.

To learn how to make sure you and your wealth are on the right of this Technocasm, click here now.


Eric Fry

P.S. For two decades, CEOs and Wall Street billionaires paid me millions for trade research and ideas. Over 20 years, the peak highs from my top recommendations averaged out to 93% a year. But I’ve left all of that behind – and invited a small group to follow my work. For that small group, in just 10 months, I uncovered total gains of 987% (including the losers!). Today, I’m inviting a few more people join me. Go here to find out more.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.

The post From Detroit Muscle to Today’s EVs … Auto Innovation Fuels Investors’ Profits appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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