Warren Buffett does not own NIO (NYSE: NIO) stock. However, he does own shares in one of the company’s close competitors, BYD so clearly thinks electric vehicles (EVs) have a strong future.
Warren Buffett’s investment
The ‘Oracle of Omaha’ has owned shares in the EV manufacturer for the past 14 years. He invested in the company because he could see the direction the world was taking. He also believed in the corporation’s management and its ambitious growth goals.
I see a lot of similarities between NIO and BYD. Both companies are striving to grab market share in the global EV market. Also, they are both looking for inventive ways to entice consumers to their brands.
I do not own NIO stock in my portfolio, but I do follow Buffett. As such, I have started to wonder if I should follow his own actions and buy shares in this EV producer as a way to invest in the global shift away from hydrocarbons towards renewable energy sources.
The outlook for NIO stock
One of the reasons why Buffett bought shares in BYD is he believed in the company’s management. The lead team laid out a set of ambitious growth goals and worked flat out to achieve these.
NIO is exhibiting the same kind of qualities. The business is working flat out to ramp up production. It delivered around 10,500 vehicles in December 2021, an increase of approximately 50% year-on-year.
It is looking to hike capacity to around 600,000 units by the end of 2022 or early 2023. This is an incredibly optimistic target, but if the company can achieve this growth, it will jump into the ranks of the most productive EV makers in the world.
And this growth potential is not the only reason I think there are a lot of similarities between NIO stock and BYD. The corporation has also developed an innovative battery solution. Consumers can swap out batteries on long journeys rather than waiting for the units to recharge.
BYD was instrumental in creating affordable batteries for EVs, and NIO could be instrumental in changing consumers’ views towards the sector.
Despite these attractive qualities, there are a couple of reasons why the company may not be able to repeat BYD’s success.
Growing challenges
Buffett was a very early mover with the company, investing before the rest of the world really latched on to the potential for EVs. Today, car manufacturers worldwide are spending tens of billions of pounds trying to capture market share.
Today, NIO’s most significant challenge is fighting through the competition to stand out in an increasingly crowded market. There is no guarantee the company will be able to outperform its peers.
Unfortunately, I am not interested in buying NIO stock with this being the case. I am listening to Buffett regarding his thoughts on green energy, but I think I have left it too long to invest in this hypercompetitive market.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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