Nio (NIO) stood out in a crowded field of electric-car stocks this year, challenging Tesla (TSLA) in China as its electric-car sales soared. Is Nio stock a buy right now?
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Nio Stock Technical Analysis
Shares of the China-based electric-car startup are near record highs but have been on a wild ride. Nio stock went public at 6 in September 2018, then hit a low of 1.19 in late 2019 on sales and cash woes.
Through most of 2020, shares rocketed as the Chinese EV market rebounded. Nio more than doubled electric SUV deliveries for the first 11 months of this year. On Nov. 17, Nio beat third-quarter views and guided high. But Nio and Chinese electric car stocks broadly have pulled back in December, as the U.S. considers requiring Chinese companies listed on U.S. exchanges to undergo annual audits or face delisting.
Nio stock was added to IBD SwingTrader Dec. 15 as it rebounded from its 10-week line on Monday, offering a new buying opportunity. The buy zone extends to 43.53 and the stock was hovering above that level Friday. Investors could also buy it now as it breaks a steepish trend line, around the 21-day line.
Any buy would be an add-on buy or a small initial position. It’s extended more than 10% from the 10-week line now, so Tuesday’s low of 41.27 would be the sell point.
Nio could be building a base. But it hasn’t really started to build the right side of a base and is far extended from an earlier 15.55 buy point, according to MarketSmith chart analysis. The relative strength line fell sharply in 2019 but has since bolted to highs. 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.
Shares earn a superior IBD Composite Rating of 94 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 A Accumulation/Distribution Rating reflects heavy buying by institutional investors in the past 13 weeks. IPO stock Nio is well traded, with decent institutional backing: 529 funds owned the EV stock as of September, up from 347 in June.
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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 56 out of 99, and an SMR Rating of D, on a scale of A+ to a worst E. The EPS rating reflects a company’s earnings growth vs. other stocks. The SMR Rating measures sales growth, profit margins and return on equity.
Nio trails both Tesla and China EV peer Li Auto (LI) in terms of its EPS Rating, according to the IBD Stock Checkup tool.
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.
Analysts expect Nio to slash losses to one cent a share in the current quarter. They expect it to more than halve losses to 61 cents a share in all of 2020, then further pare losses to 29 cents a share in 2021. Revenue is seen more than doubling in each of the current quarter, all of 2020 and all of 2021, according to Yahoo Finance.
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Wall Street Cheers ‘Strong EV Leader’
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%. And in Q4 so far, Nio deliveries have more than doubled again.
As the EV arms race heats up, Nio raised $2.65 billion in an upsized share offering in 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’s locally made Model 3 sedan was the No. 2 bestselling EV in China in November, as sales jumped 78% from October on the back of price cuts.
Wall Street is growing more bullish on Nio. In October, 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. Earlier in August, the firm saw an improved outlook for Nio earnings and cash flow.
Also in October, JPMorgan forecast Nio could take a massive 30% slice of the premium EV market. The firm cited, in part, the expected debut of a new affordable electric sedan. Nio currently sells the ES8 and ES6 electric SUVs, and a new EC6 electric crossover.
Two analysts on Wall Street rate Nio stock a buy, five have a hold and none has a sell, per Zacks.
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Nio Stock, China Electric-Car Outlook
Nio’s been making bullish delivery forecasts. It says production bottlenecks are easing and its electric cars are seeing favorable word-of-mouth.
For all of Q4, Nio sees deliveries of 16,500-17,000 vehicles, up 101%-107% from a year ago but down from Q3’s growth of 154% and Q2’s 191% surge.
In an interview cited by Barron’s, CEO William Li said Nio should reach annual production capacity of 150,000 units by the end of 2021. Longer term, Nio aims to double output to 300,000 per year. For context, Nio delivered 20,565 electric vehicles in 2019.
Wall Street is optimistic about those targets. “We believe the company can achieve this using existing industry capacity instead of building a greenfield plant given rampant overcapacity in China, which should reduce its capex burden,” Deutsche Bank analyst Edison Yu said in October.
Analysts are also bullish about overall China EV sales, adding further lift to Nio stock. JPMorgan expects the EV share of the total China car market to quadruple to 20% in 2025 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 “a major inflection of EV demand,” expecting electric vehicles to ramp from about 3% of total auto sales today to 10% by 2025. For China, it sees a “tidal wave of momentum” heading into 2021.
China, the world’s biggest market for electric cars, wants EVs to be 25% of all new car sales by 2025.
Wall Street expects Nio’s newly launched EC6 electric crossover, as well as its battery initiatives, to drive future momentum.
Nio reports very strong demand for the new EC6. A robust order backlog means buyers wait around eight weeks to actually get the EV. It also plans to expand its lineup with a couple of electric sedans, starting in 2021.
In 2020, Nio launched “Battery as a Service,” 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 the needs of the vehicle they’re driving at the time.
And Nio debuted a new 100 kWh battery pack option Nov. 6, with higher range up to 360 miles. That’s a good sign, since range anxiety is one of the biggest obstacles to EV adoption.
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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 brighter and more joyful future, summed up in its Chinese name Weilai, which means “blue sky coming.”
In June 2018, Nio began deliveries of the ES8, a premium electric SUV and its first volume vehicle. A year later, it started delivering the smaller ES8. In September 2020, Nio began delivering the EC6, seen as a potential rival to the upcoming made-in-China Tesla Model Y.
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.
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Rival Electric Car Stocks
Nio stock belongs to the auto manufacturers industry group. Surging Tesla stock fueled the group’s rise this year. Auto manufacturing currently ranks No. 1 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 and ahead of Ferrari (RACE).
Several new electric-car stocks emerged in 2020 in Tesla’s wake. Those stocks include Nikola (NKLA), Workhorse Group (WKHS), Hyliion (HYLN), Xpeng Motors and Li Auto.
In addition, legacy automakers General Motors (GM), Volkswagen (VWAGY), Ford Motor (F) and Fiat Chrysler (FCAU) see an electric future ahead. Many of those, notably VW and GM, have big plans for EV production and sales in China.
Backers of Nio include Chinese tech giants Tencent (TCEHY) and Baidu (BIDU). And Alibaba (BABA) has invested in Xpeng.
Nio, Xpeng, Li Auto and BYD (BYDDF) have all increased China EV sales in recent months. After several price cuts, Tesla’s China sales are on the upswing too.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio stock is improving after debt and liquidity fears slammed shares last year. Nio is paring losses while delivering huge top-line growth. As capacity increases, production should no longer weigh on growth, the company says.
The outlook for Nio car sales and overall electric car sales in China seems robust, while an expansion in Europe will be watched.
Major Wall Street firms also laud the EV startup’s improving financials and subscription battery business model. Similar to Tesla, Nio may become an EV battery play as much as an electric car stock.
Technically, Nio stock is not in a buy zone, but a rebound off a key support level offers a chance to add shares. Investors should wait for this hot electric-car stock to form the right side of a base before starting a new position.
Bottom line: Nio stock is a buy right now for existing investors. For others, keep on eye on it.
To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD research.
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