With all the criticism that Chinese electric vehicle maker Nio (NYSE:NIO) has suffered, you’d expect shares to likewise hurt. Instead, Nio stock is holding its own quite well. While most other publicly traded companies are overly reacting to the epidemic, NIO has quietly tread water. Significantly, shares have more than doubled since the beginning of last October.
Part of that is due to the enthusiasm over the phase one trade deal between the U.S. and China. For a lengthy period, the world’s top-two biggest economies traded jabs and tariffs. At one point, pundits feared that we’d never get over the geopolitical hump. Eventually, though, cooler heads prevailed.
But many analysts derided the idea that Nio stock could maintain its newfound momentum. Although the EV space is full of potential – just look at Tesla’s (NASDAQ:TSLA) meteoric rise – critics took issue with NIO’s fundamentals. On paper, the company’s pathway to profitability doesn’t look pretty. Its net income continues to move further away from break-even. As well, debt levels soared in 2019.
Yet this is a classic case of missing the forest for the trees. For one thing, the growth trek underlining Nio stock has been nothing short of explosive. Moreover, the consensus estimate for full year 2020 revenue is $13.7 billion. If NIO hits its target for 2019 revenue of $8 billion, this would represent a 71% year-over-year lift.
Second, profitability concerns aren’t the end all, be all. Amazon (NASDAQ:AMZN) had some rough outings in the past. Many considered Facebook’s (NASDAQ:FB) first financial report as a public company a disappointment. You don’t see many questions about either company’s long-term viability because of their relevance.
So it is with NIO.
Extraordinary Growth Channel Awaits Nio Stock
When considering any investment, one of the most critical factors to consider is context. For instance, is buying into a company that’s losing money a desirable bet? In most cases, probably not. But this isn’t a hard and fast rule.
If we were talking about Chesapeake Energy (NYSE:CHK), I wouldn’t even think about a long position. Chesapeake is levered to yesteryear fossil-fuel technologies. Adding insult to injury, it’s not doing a good job of managing this increasingly irrelevant industry.
On the other hand, Nio stock represents everything that a company like Chesapeake is not. 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.
You just have to be patient and wait out the growing pains. Every company goes through it. But I would argue that NIO has a very high probability of success.
On almost every level, EVs are superior to cars running internal combustion engines (ICE). First, there is the obvious environmental consideration. EVs have no waste products so you can run them in your garage without risking carbon monoxide poisoning, one of the leading causes of accidental death.
Second, EVs are friendlier to your budget. ICE cars are convoluted machines with thousands of moving parts that require regular (and sometimes very expensive) maintenance. In contrast, EVs have far fewer parts, resulting in cheaper service costs.
Third, the various technologies and innovations that underline EV development is improving all the time. Thus, one of the deterrents against switching to EVs – range anxiety – is becoming less of an issue. And adjusting driving habits can go a long way to extending battery capacity.
China Is More Serious About EV Adoption
A recurring theme I encountered during my travels abroad is that we Americans tend to focus on immediate problems. I believe some of that comes from our relatively short, four-year political cycle: it’s very difficult for an administration to plan out long-term strategies when they’re constantly thinking about reelection and political maneuverings.
Of course, it’s a different situation in China. Like it or not, there are some advantages with what I’ll politely call extended continuity of governance. Primarily, it allows government officials to map out multi-decade plans, something that is inconceivable from Washington.
For Nio stock, this broader outlook will translate into quicker and more expansive EV adoption. Stateside, among the toughest impediments to adoption is infrastructure. Frankly, our roads are unfit for ICE cars, let alone EVs.
But China sees the writing on the wall. They recognize that the future is electric. Therefore, they’ve invested significant funds toward developing EV charging stations in their largest cities. And more are on the way.
Ultimately, my view on Nio stock is to take advantage of any discounts and exercise patience. The pieces are in order. It’s only a matter of time before the rest of the markets recognize this.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.