Is It Time To Buy NIO?

: NIO | NIO Inc. ADR News, Ratings, and Charts

NIO – NIO (NIO) is an intriguing Chinese EV stock with considerable upside. As TSLA stumbles, NIO is poised to continue taking market share and expanding into new markets.

  • New problems for Elon Musk

  • The TSLA chief thrives on controversy

  • NIO is a Chinese competitor

  • A bullish trend and a correction

  • EVs are the future- NIO’s potential offsets its risk as a Chinese company

Electric-powered vehicles are the future in the US and worldwide. With the Biden administration addressing climate change a central focus over the coming years, increased regulations will cause fossil fuel production and consumption to decline. Each month, we see more EVs on the road, and that trend is likely to continue.

In a sign that EVs are not just the future but the present, Tesla’s (TSLA) market cap was nearly three times higher than the second leading automaker, Toyota. TSLA was over seven times higher than General Motors (GM), the second-leading US car manufacturer. TSLA has been the epitome of a growth stock over the past year. However, even its chief, Elon Musk, expressed some doubts about the rise of the company’s value.

There is plenty of room for competition in the EV market. NIO Limited (NIO), a Chinese EV maker, has the seventh-largest market cap at around the $67 billion levels and is four spots above Ford (F) on the list. NIO is a growth stock as the world moves away from gasoline-powered vehicles.

New problems for Elon Musk

Elon Musk is one of the world’s wealthiest people. He is also very influential in markets. Mr. Musk may have taken over as the Tweeter-in-chief (TWTR) from former President Trump after the social media site banned him earlier this year.

Meanwhile, a single tweet by Elon Musk can send a stock or a cryptocurrency soaring higher or falling like a knife. With all that power comes a rising set of risks. A Tesla (TSLA) is now suing Elon Musk and Tesla’s board of directors, charging that Musk’s “erratic” tweets violate a settlement with the US Securities and Exchange Commission.  In May 2020, Mr. Musk tweeted that “Tesla stock is too high.” In 2018, the SEC charged Elon with securities fraud when he tweeted; he would take Tesla private in a $72 billion transaction after short-selling weighed on the stock. Mr. Musk and Tesla settled the case with a $20 million fine each. The SEC told Tesla the company needed to follow oversight procedures related to any social media posts, including tweets, from Elon Musk.

With his fingers hot on his Twitter account commenting on everything from cryptocurrency values to “woke culture,” Elon is flirting with danger, provoking regulators to slap him and his company again.

The TSLA chief thrives on controversy

In his latest move, Elon Musk changed his title at Tesla to “Technoking,” according to a new filing with the SEC. The company’s Chief Financial Officer, Zach Kirkhorn, received the official title, “Master of the Coin,” a reference to Tesla’s recent $1.5 billion Bitcoin purchase.

Mr. Musk is a disruptor and a provocateur. He operates under the philosophy that any press is good press. He has a cult-like following in markets. He has delivered for investors, despite many dubious analysts. He has turned Tesla, a carmaker, into an alternative energy and fintech company. His other two companies are sending rockets into space and tunneling below the surface to improve transportation logistics and the environment.

Elon is a genius, but that does not mean the regulators will not occasionally slap his wrists. He seems to revel in the controversy, so we should expect it to continue. A $20 million fine and a slap on the wrist is not a meaningful amount for the billionaire, which he likely considers worth the price for maintaining a filter-less presence in markets.

As the EV market expands, there is room for competitors. China’s NIO is hot on Tesla’s heels as the carmaker with the seventh leading market cap.

NIO is a Chinese competitor

Tesla is by far the world’s leading EV and car marker by market cap. NIO designs manufacture and sells EVs in China, Hong Kong, the US, the UK, and Germany. The company makes five, six, and seven-seat SUVs. NIO’s headquarters are in Shanghai, China. The company has been around since 2014.

NIO has a complex legal structure. However, in a market with incredible growth potential, NIO shares are likely to continue to attract speculative interest. NIO has not reported a profit over the past four quarters.


Source: Yahoo Finance

While NIO has reported consecutive losses, the company beat analyst EPS forecasts in three of the last four quarters.

Source: Yahoo Finance

Meanwhile, the trend in revenues and earnings is positive, which could mean the company is on the verge of reporting a quarterly profit.

NIO shares were trading at the $43.10 level on March 18. Nineteen analysts forecast an average $57.57 target for the stock, with estimates ranging from $12.97 to $90.81 per share.

Source: Yahoo Finance

The chart shows that analysts are mostly positive about the prospects for NIO shares.

A bullish trend and a correction

NIO shares reached an all-time high of $66.99 on January 11.

Source: Barchart

The chart highlights the impressive bullish trend in the shares, starting from a low of $2.11 in March 2020. After a correction from the $66.99 high in mid-January, NIO fell to $31.91 on March 1. Since then, the shares recovered to the $43 level as of March 18.

The trend remains bullish for the company with around a $70 billion market cap. NIO is a popular and highly liquid stock, with an average daily trading volume of just below 112 million shares.

EVs are the future- NIO’s potential offsets its risk as a Chinese company

As EVs gain market share in the US and worldwide, NIO will attract more interest. NIO is a trading rather than an investing stock as there are more than a few holes in fundamental research on the Chinese stock because it the company’s complex structure. NIO delivered 43,000 EVs in 2020, and the prospects are for more deliveries in 2021 as the company expands in China and into Europe.

A $60 price target seems like a fair level for the stock, which is under 40% above the current price. Meanwhile, the stock could move a lot higher as interest continues to expand in the EV market. A quarterly profit would turbocharge the stock, which could be on the horizon later this year or in 2022.

Meanwhile, Mr. Musk will continue to be himself, no matter how much it costs him. Elon is the best advocate for the EV industry as his competitor’s shares are likely to move higher and lower with TSLA for the foreseeable future.

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NIO shares were trading at $42.92 per share on Thursday afternoon, down $1.84 (-4.11%). Year-to-date, NIO has declined -11.94%, versus a 5.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...

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