Relax, Elon. China’s NIO Is No Tesla Killer: Anjani Trivedi

Nothing seems to faze Elon Musk. And neither should the fact that Tesla Inc.’s biggest investor is backing a self-proclaimed rival in China.

Baillie Gifford & Co. has taken an 11 percent stake in electric-car company NIO Inc., the fund manager disclosed Tuesday. NIO’s U.S.-traded stock surged as much as 22 percent on the news.

Shanghai-based NIO raised about $1 billion last month in a New York initial public offering that was priced at the bottom of the marketed range, raising less than the company hoped. The shares have danced around since they started trading, dropping on the first day and surging 76 percent on the second amid speculation a big algorithmic trader was in the market. Either way, confidence has been lacking. As of Monday’s close, the stock was still lower than its IPO price.

Baillie Gifford’s investment doesn’t mean all is well now. Here’s the reality: Every carmaker and big investor (read: SoftBank Group Corp.) has its finger in plenty of pies when it comes to the future of cars and mobility – whether electric cars, ride-sharing or autonomous-driving technology. Or, of course, China.

There’s another truth that investors and electric-car fanboys have to contend with: NIO and Tesla aren’t as similar as they might appear. Although both burn cash, NIO doesn’t make its own cars. It doesn’t even have a license to manufacture. The company has a production agreement with an automaker in China that also makes electric cars for Volkswagen AG. This is an overlooked issue, as we wrote here.

Tesla, meanwhile, does make its own vehicles – even if it takes it a while to churn them out. This isn’t to say that Musk’s company has it all figured out, as my fellow columnist Liam Denning has documented.

Perhaps, for Baillie Gifford, NIO provides a China hedge for the electric-car trend. The Edinburgh-based fund manager may as well back a luxury electric marque that already has a few thousand vehicles in the market while waiting for Tesla to get its act together and set up in China. After all, NIO does have a host of deep-pocketed Chinese backers. Other foreign automakers such as Porsche Automobil Holding SE and Jaguar Land Rover have also yet to introduce high-end electric vehicles in the world’s biggest car market.

The market’s memory is often too short. Several Chinese carmakers have arrived amid much fanfare, only to fade. One was even called the “Chinese Tesla Killer” (a label that some have since applied to NIO).

Granted, Musk has been testing his investors’ patience. Last month, a fund manager at Baillie Gifford was cited by London’s Evening Standard as saying the Tesla founder needed help, psychologically as much as practically. But for an investor with money in everything from energy and financials to healthcare to put 0.37 percent of its total assets under management behind NIO isn’t necessarily an endorsement. It’s just a diversification play.

For all of Tesla’s challenges, NIO has plenty of its own.