Some thoughts on automobile stocks

In 2018 I wrote a blogpost on investing in automobile companies (see article Let’s talk about cars and investing).

There are some specific characteristics of that industry an investor should know beforehand.

The auto sector is

• extremely capital intense
• very cyclical,
• strongly regulated and
• highly dependent on leverage.

Furthermore, the car industry is under a constant threat of technological disruptions. As you might be well aware, there is a megatrend going on, the world’s transition to sustainable energy and electrification of transportation.

Tesla clearly has a pioneering role and I am glad to have taken a stake in that hypergrowth company back in 2020. But Tesla will have to master huge challenges too.

As said, the car industry has some tricky dynamics.

Interestingly, so far, all my car investments have fared very well, such as my stakes in

• Porsche Automobil Holding SE (I’ve taken a stake in the midst of the so-called “Diesel-Scandal” back in 2015)
• Bayerische Motorwagen (BMW; I’ve taken a stake in 2018)
• Tesla (I invested in summer 2020 into that company)
• Ferrari (I invested early in 2021)

Taking exposure to the Chinese electric car market

As said, electrification of automobiles is a huge megatrend and China has the largest and one of the fastest growing market.

Tesla is still the the world-leader in electric-vehicles (EV) but Chinese manufacturers are gaining momentum such as XPeng, BYD (Build Your Dream, a company where Berkshire Hathaway as a stake in) and Nio.

Besides the fact that Nio has an incredible strong home market, what I like in particular about that company is the fact that it’s targeting the higher margin luxury car segment and has worked hard to build a differientated product as well as securing a loyal customer brand. Nio is the more established company compared to XPeng and in the medium and long run it could show very good profitability.

Currently, Nio is investing heavily into research and development, marketing and in particular into its global expansion. Nio’s product rollout in Europe in particular Norway is an interesting one. We are talking about one of the richest countries in the world and Norway has the highest reat of EV adoption.

Nio shows a solid balance sheet, a strong brand and ambitious but realistic growth plans. So, in March 2021, amid a stock market correction in many tech businesses, I pulled the trigger to buy shares of Nio in the amount of roughly USD 1’000 to make a nice addition to my Tech Portfolio.

What about you, fellow reader, have you invested into electric car makers such as Tesla and/or Nio?

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.