Nio stock jumped after the Chinese EV maker unveiled its first long-battery-life electric car in January. But is the Tesla (TSLA) rival a buy now?
Nio (NIO) reported strong December sales to kick off 2021, sending shares soaring. And Nio stock surged afresh Jan. 11 after it unveiled its first electric sedan with a longer-range battery and self-driving features Saturday.
Nio Stock Technical Analysis
Shares of Nio are back in buy range from their latest breakout. Nio stock topped a 57.30 cup-shape buy point in solid volume Jan. 8, according to MarketSmith chart analysis. The second-stage pattern goes back to late November and formed above the 50-day line, which is a positive. The 5% chase zone extends to 60.17.
The relative strength line for the Chinese EV stock made a high as the stock broke out, a bullish sign. The RS line has bolted higher since June 2020 and is now just below highs reached earlier this month. A rising RS line reflects a stock’s outperformance vs. all stocks in the S&P 500. It is the blue line in the chart shown.
Nio stock went public at 6 in September 2018, then hit a low of 1.19 in late 2019 on sales and cash woes. The company staged a strong rebound in 2020 along with China EV sales.
Shares earn a superior IBD Composite Rating of 95 out of 99. The rating combines key fundamental and technical metrics in a single score. An unbeatable 99 RS Rating well exceeds the 80 or higher that investors in top growth stocks would want to see.
Nio’s Accumulation/Distribution Rating of A+ reflects heavy buying by institutional investors in the past 13 weeks. IPO stock Nio is well traded, with decent institutional backing: 611 funds owned the EV stock as of December, up from 531 from September. Nio shows eight quarters of rising fund ownership.
Nio Earnings And Fundamental Analysis
On key earnings and other fundamental metrics, Nio lags. It’s a young and fast-growing company, still looking to turn a profit. Nio stock earns an EPS Rating of 55 out of 99, and an SMR Rating of D, on a scale of A+ to a worst E. The EPS rating compares a company’s earnings growth vs. other companies. The SMR Rating measures sales growth, profit margins and return on equity.
On Nov. 17, Nio beat estimates for the third quarter. Nio lost 12 cents a share as revenue more than doubled to $666.6 million. Vehicle margin expanded to 14.5% from -6.8% a year ago and 9.7% in Q2. Available cash more than doubled from Q2 to $3.3 billion in Q3. While earnings remain elusive, losses are narrowing.
Nio sales slumped at the start of 2020 due to the coronavirus outbreak, which originated in the Chinese city of Wuhan.
But sales quickly rebounded. In Q2, Nio deliveries vaulted 191% year over year. In Q3, Nio deliveries jumped 154%. For Q4, Nio deliveries increased 111%, topping the high end of the company’s guidance but slowing vs. the prior two quarters.
Analysts expect Nio to pare losses to 40 cents a share in 2021 from 65 cents in 2020, as revenue swells 88%, according to Zacks Investment Research.
Wall Street Cheers ‘Strong EV Leader’
As the EV arms race heats up, Nio raised $2.65 billion in an upsized share offering last December. Li Auto and Xpeng (XPEV), another China EV peer, also raised capital, as they look to accelerate production expansion amid a fierce battle with Tesla on their home turf. Tesla also achieved record deliveries in the fourth quarter of 2020, on the back of what Wedbush analyst Dan Ives believes was “pronounced strength” in China.
Wall Street is growing more bullish on Nio. In October last year, Morgan Stanley called Nio a “strong EV leader in the making.” The firm hiked its earnings forecasts and price target on Nio stock, citing strong sales momentum.
Also in October 2020, JPMorgan forecast Nio could take a massive 30% slice of the premium EV market. Nio’s lineup includes the older ES8 and ES6 SUVs, a new EC6 electric crossover, and the latest ET7 electric sedan, which Nio will start delivering in Q1 2022.
Two analysts on Wall Street rate Nio stock a buy, five have a hold and none has a sell, per Zacks.
EV Stocks, China Electric-Car Outlook
Nio touts its growth prospects. It says production bottlenecks are easing while its electric cars generate favorable word-of-mouth.
In an interview cited by Barron’s in October, CEO William Li said Nio should reach annual production capacity of 150,000 units by 2021. Longer term, Nio aims to double output to 300,000 per year. For context, Nio delivered 43,728 electric vehicles in 2020.
Analysts are bullish about overall China EV sales, adding further lift to Nio stock. JPMorgan expects EVs to make up 20% of the total China car market in 2025, quadrupling from under 5% in 2019. The costs of producing EVs and traditional vehicles will reach parity by 2023, driven by lower battery costs, the firm says.
Globally, Wedbush sees “a major inflection” of demand, with EVs going from 3% of total auto sales today to 10% by 2025. That will be driven by a “tidal wave of momentum” in China.
China wants EVs to be 20% of all new car sales by 2025. It is the world’s biggest market for electric cars.
Wall Street expects Nio’s new EC6 electric crossover and a pair of upcoming electric sedans, including the new ET7, to drive growth. Analysts also highlight Nio’s battery innovations and a unique battery subscription service.
The EC6, which only went on sale last September, is now Nio’s top seller. It will face competition from the made-in-China Model Y crossover, which Tesla began delivering Jan. 19 in the country. The Model Y is priced below the EC6. Both those electric crossovers face competition from ID.4, an affordable electric crossover for the masses that Volkswagen (VWAGY) is starting to sell in China.
In 2020, Nio launched “Battery as a Service” (BaaS), a subscription plan for batteries. Essentially, the car and the battery are sold separately. Users can buy electric cars without batteries for a lower price and swap out batteries for a monthly fee depending on their needs.
Nio debuted a 100 kWh battery pack last November, with a longer range up to 360 miles. Its 150kWh battery, revealed this month along with the ET7, promises even longer range of 600 miles on a single charge.
As Nio develops battery technology, more than 40% of new customers subscribed to its new BaaS program in December.
Nio Looks Beyond China
Founded in 2014, Nio emerged on the China auto scene with little experience in the mass manufacturing of electric vehicles. But the EV startup promised a bright future, summed up in its Chinese name Weilai, which means “blue sky coming.”
In June 2018, Nio began selling the ES8, a premium electric SUV and its first volume vehicle. Nio launched the smaller ES6 electric SUV in June 2019 and the EC6 crossover in September 2020. Preorders for the new ET7 started in January, with deliveries set for Q1 2022.
Nio plans to enter other global markets, starting with Europe, in the second half of 2021. Meanwhile, Tesla stock could benefit from exports of its lower-cost, made-in-China Model 3 cars to European markets that began in October.
Unlike Tesla, Nio does not manufacture its own vehicles. It partners with China’s Jianghuai Automobile Group on manufacturing the ES8, ES6 and EC6 utility vehicles.
In its latest annual report, filed in May, Nio warned that partnering with third parties on auto manufacturing is risky, given operations outside of its own control.
Rival Electric Car Stocks
Nio stock belongs to the auto manufacturers industry group. Surging Tesla and Nio shares fueled the group’s rise this year. Auto manufacturing ranks No. 2 out of 197 industry groups tracked by IBD, as investors warm up to electric-car stocks. Nio itself ranks No. 2 within this group, behind Tesla.
In addition, legacy automakers General Motors (GM), Volkswagen (VWAGY), Ford Motor (F) and Stellantis (STLA), formerly Fiat Chrysler, see an electric future ahead. Even Italian supercar maker Ferrari (RACE) eyes a transition toward hybrid-electric mobility. Many of those companies, notably VW and GM, have big plans for EV production and sales in China.
At some point, soaring output of electric cars could outpace overall demand, squeezing sales and prices.
Nio, Xpeng and Li Auto, as well as China’s established EV and car battery maker BYD (BYDDF), all grew China EV sales in recent months. After several price cuts, Tesla’s sales are surging in China.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio’s financial condition is improving after debt and liquidity fears slammed shares. Nio is paring losses while delivering huge top-line growth.
The outlook for Nio’s sales and overall electric car sales in China seems robust, while an expansion in Europe promises more runway for growth.
Major Wall Street firms also view the EV startup’s subscription battery business model as innovative. Similar to Tesla and BYD, Nio may become a battery play as much as an EV stock.
Nio broke out on Jan. 8 after a massive rally in 2020. Following choppy progress from the breakout, it was back the buy zone as of Jan. 20.
Bottom line: Nio stock is a buy.
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