Shares in Chinese electric car maker Nio (NYSE:NIO) showed some signs of life in January, but that didn’t last. Following a pattern investors have become very familiar with, NIO stock has dropped 33% since January 21.
It’s down 65% in a little over a year, after hitting $10.06 on March 1, 2019. Is Nio due for a recovery, with the potential to ride the electric car wave to glory?
Maybe, in the long term. But there are a lot of things that would have to go right for Nio.
Bad News Keeps Piling on Nio
Nio was no stranger to bad news in 2019. You can check out this post for the litany of crises the company faced up until September. From there, the situation continued to deteriorate. Nio stock hasn’t taken such a beat-down without reason.
Among the more recent examples of bad news for Nio, Tesla (NASDAQ:TSLA) opened its first Gigafactory in China last fall. On December 30, the first Model 3 cars rolled off the line for delivery. Tesla now becomes a much more formidable competitor for Nio in the luxury Chinese EV market.
The coronavirus from China has had a measurable impact on Nio’s sales. The company says it delivered just 1,598 vehicles in January. That’s down 11.5% year-over-year, and a dramatic drop from the 3,170 it delivered in December.
In the latest news to rock the EV market, on Wednesday General Motors (NYSE:GM) unveiled Ultium, the company’s new modular electric platform. With a $20 billion investment, Ultium is expected to be the foundation for a new generation of GM electric vehicles.
In 2019, GM experienced its second straight year of declining car sales in China. Ultium could see the company look to reverse that trend by appealing to electric car buyers in the Chinese market.
There was a bit of recent good news for NIO — even if it was tied to the coronavirus. At the end of February, the company announced a cash injection from the city of Hefei (capital of China’s Anhui province). In return for establishing a new HQ in the city and expanding its partnership with local suppliers, Nio will be getting $1.4 billion.
Bottom Line on Nio Stock
So, what are the prospects that we’ll see Nio recover and NIO stock once again approaching the heady levels of 12-months ago?
That’s a tough call, with some pretty significant variables.
Will the coronavirus peter out or develop into a full-blown pandemic that hammers the global economy? Will the trade war between the U.S. and China continue to cool? Will China’s economy (and new car sales) pick up after last year’s record slowdowns? Will Tesla start to eat into Nio’s market in a big way? Will GM’s new Ultium electric vehicles lead to a comeback in the American auto maker’s faltering China sales?
Those are a lot of balls to juggle. The investment analysts surveyed by The Wall Street Journal are taking a wait-and-see approach. They have Nio as a consensus “hold.” Their 12-month price target of $4.06 doesn’t reflect much confidence in growth for NIO stock (that’s about 9%).
InvestorPlace’s Matt McCall has a much more optimistic take on Nio’s prospects, especially in the longer term.
“It has almost ridiculous upside potential. Further, NIO is plying its trade in the world’s largest automotive market. With a rising Chinese middle class meeting homegrown, beautiful cars, the narrative is exceedingly positive,” he wrote.
If your approach to Nio falls in line with the current, cautious, wait-and-see approach, then the fact that NIO has dropped 65% in just 12 months (after topping the $10 level last March) is more ammunition. As is the fact that shares in the company have slid 33% from their 2020 high of $5.17, set on January 20.
If you agree with Matt’s assessment — and there are analysts who have NIO rated as a “buy” and a 12-month price target nearing $13 — then at its current price, NIO stock is a bargain. Either way, keep an eye on those variables because any one of them has the potential to have a meaningful impact on where NIO goes from here.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.