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Should You Buy Tesla Shares When Li Auto and Nio Are Much Cheaper?

Simon Mugo trader
Updated 2 May 2022

Trade Nio Shares Your capital is at risk

Key points:

  • Li Auto and Nio inc shares are much cheaper than Tesla’s.
  • So the Chinese EV manufacturers may be a better investment.
  • The two companies released their April delivery numbers today.

Tesla’s (NASDAQ: TSLA) stock was trading at $870.76 at writing, which is pretty expensive for the average retail investor who has a few thousand dollars to invest. On the other hand, Tesla’s Chinese rivals Li Auto (NASDAQ: LI) and Nio Inc ADR (NYSE: NIO) traded at $22.43 and $16.70.

Also read: The Best Electric Car Stocks To Buy Now.

Savvy investors know that it is much easier for a company trading at a lower stock to double its valuation than for a firm with a higher stock price to double its share price. So, for example, it is tough for Tesla to double its share price of $870.76 compared to Li Auto and Nio, trading at a fraction of the cost.

However, investors may be concerned that companies with cheaper valuations could go bankrupt, which frequently happens with penny stocks. Therefore, it is not surprising that some investors may have second thoughts about buying cheaper stocks.

Another significant concern for investors is that Li Auto and Nio inc are Chinese companies with primarily local operations. In addition, China is well-known for its lack of transparency, which leaves many investors guessing about the actual performance of  Chinese companies.

In the past, Chinese businesses have been accused of stealing the trade secrets and proprietary technologies of western firms that opened branches in the country. However, these trends have changed with time as Chinese companies started developing unique technologies and became significant competitors to Western firms, as evidenced by Li Auto, Nio and Tesla.

Li Auto and Nio just released their April delivery numbers, with Li Auto delivering 4,167 Li ONEs while Nio delivered 5,074 electric vehicles. Both companies cited the COVID-19 outbreaks in China and other supply constraints for the lower deliveries. Li Auto delivered 11,034 Li ONEs in March 2022, while Nio delivered 9,985 vehicles during the same month.

Each of these companies has a unique approach to designing and manufacturing their electric cars, the car models they sell, and how they market them. As a result, these are homegrown electric vehicle companies that have emerged as significant competitors to Tesla.

Regarding the transparency of Chinese businesses, the country’s regulators collaborate with US regulators to provide all the necessary financial information regarding Chinese firms. The ongoing process marks a crucial turning point in China’s corporate policies as its US-listed firms become more transparent, protecting investors who are not based in China.

Still, one may argue that Tesla has proven that its business model works over many years and is the leading EV manufacturer globally; hence, its high share price is justified. I would have to agree with this assessment, but if I had $1,000 to invest, I’d buy 45 Li Auto shares or 59 Nio shares rather than just one Tesla share.

Therefore, investing in Li auto and Nio shares might be better for investors with limited funds than buying Tesla shares.

*This is not investment advice. Always do your due diligence before making investment decisions.

Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading