In the Chinese electric-vehicle market, Nio (NYSE:NIO) is often considered a pioneer. However, profiting from Nio stock requires either good timing or a fair amount of patience. Ideally, shareholders should have a firm belief in the company — as well as the electric-vehicle market in general.
While it’s certainly not Nio’s fault, the spread of the novel coronavirus has upended the automotive industry and made it more challenging to turn a profit. In turn, this has undoubtedly been a contributing factor to the choppy price action in Nio stock.
If you like the company and the electric-vehicle industry, it’s possible to buy the dips, sell the rips, rinse and repeat. A simpler strategy, however, is just to hold the shares and wait for the investing community to appreciate the long-term potential of the Chinese electric-vehicle market and Nio in particular.
Recharging a Stalled Market
In order to own Nio stock shares with confidence, it’s important to appreciate the magnitude and nuances of the Chinese electric-vehicle industry. China’s automotive market is the largest in the world. In fact, 25 million vehicles were sold in China in 2019.
Of those millions of vehicles sold in China, 1.2 million of them were new-energy vehicles. That’s a broad category, which includes hydrogen fuel-cell vehicles as well as plug-in hybrid vehicles.
In 2020 so far, the spread of the coronavirus undoubtedly slowed the sales of new-energy vehicles (and all other types of vehicles, for that matter) in China. However, this situation won’t last forever, as China is pressing forward with its goal of reducing the country’s pollution problem.
Moreover, the Chinese government still has a target of having new-energy vehicles comprise 20% of the nation’s auto sales by the year 2025. Today, that number only stands at 5% — and therefore, China is likely to continue encouraging electric-vehicle sales.
In fact, we’re already seeing signs of China’s commitment to cleaner vehicles. The Chinese government recently announced that it will extend the provision of subsidies for new-energy-vehicle sales all the way out to 2022.
It should be noted that these subsidies will only be applied to passenger cars priced at less than 300,000 RMB. That’s the equivalent of $42,376, so more affordable electric vehicles would still be eligible for the subsidies. And Nio’s vehicles are, for the most part, relatively affordable.
A Potential Vehicle for Profits
Additionally, the Chinese government is also providing tax incentives that could benefit Nio. Specifically, new-energy vehicles purchased between Jan. 1, 2021 and Dec. 23, 2022 will be exempt from a 10% purchase tax.
Not only that, but Chinese authorities have expressed support for sales of vehicles with swappable batteries. This is a technology that Nio has pursued vigorously, even to the point of offering a free battery-swap service.
So with the Chinese government’s help, Nio could experience major breakthroughs in sales and revenues over the next few years. Or, the breakthroughs could come sooner than that. Much of it depends on how quickly the medical community progresses in developing solutions to address the spread of the coronavirus.
That’s difficult to predict, but in the meantime we can look at Nio’s most recent sales data. Fortunately, the numbers are encouraging. In March of 2020 Nio delivered 1,533 vehicles, representing impressive month-over-month growth of 116.8%.
Nio Founder and CEO William Bin Li had this to say in the report:
“In parallel with our continued online sales efforts, our in-store visits have also witnessed a gradual pickup. With the continuous support from our loyal user community, we have seen increasing order backlog since February.”
Steven Feng, the company’s CFO, added that the Covid-19 outbreak “is largely brought under control in China at this stage” and furthermore that Nio “will continue working closely with our supply chain partners to resume normal productions.”
The Final Word on Nio Stock
It’s understandable if not everyone want to grab shares of Nio stock. The future trajectory of the coronavirus, and therefore the fate of the automotive market, is hard to predict. Still, Nio’s recent pickup on vehicle sales and the Chinese government’s continued commitment to promoting new-energy vehicle sales should provide headwinds to this fascinating cleaner-car contender.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
