Nio (NYSE:NIO) has seen a promising start to 2020 sideswiped by the novel coronavirus.
The so-called Tesla (NASDAQ:TSLA) of China saw shares recover from near-penny-stock status in October to topping the $5 level in January. Nio stock tumbled as the coronavirus tore through China, but it appears to have bottomed out.
In April Nio stock has been on the rise again. Currently trading at $6.30 after posting a 6.31% gain on Wednesday, is Nio worth considering?
Nio’s March Delivery Update Has Good News
On April 7, Nio released a delivery update for the month of March with good news for stakeholders. The company’s CEO reported:
“We are pleased to see the gradual recovery of our production in March, with special thanks to the great support from our supply chain partners since the second half of March. 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.”
That recovery amounts to a delivery of 1,533 vehicles, a count that’s up by nearly 117% compared to February. To put that in some context, in December, before the coronavirus pandemic took hold in China, Nio delivered 3,170 vehicles.
Now Tesla is the ‘Tesla of China’
Part of the Nio story has always been its positioning as ‘the Tesla of China.’ That starts with founder William Li Bin, who has often been called ‘the Elon Musk of China.’ There were parallels between the two companies, starting with the obvious (both produce electric cars) and the fact that Nio also chose to focus on the luxury auto segment.
However, one big concern for Nio investors is that Tesla is now operating in China. Elon Musk’s company opened its first Chinese Gigafactory in Shanghai last October. That allowed Tesla produce vehicles locally to avoid the 25% import tax it had previously been paying, while also reducing freight costs.
The Shanghai Gigafactory has been reopened after the coronavirus shutdown and it’s pumping out Tesla Model 3s. That means Nio is going to be competing head-to-head with Tesla in its home market of China. Only now Tesla will be on an even footing price-wise, and will be able to deliver cars in large quantities. The original production target for the Shanghai Gigafactory was over 1,000 Model 3s per week, a volume that would top what Nio has been able to hit.
Bottom Line for Nio Stock
The situation for Nio doesn’t seem as dire as it once did, and even though Nio stock is down 40% from January highs, it has been on the rise again through much of April. The company’s March vehicle delivery report showed production is picking up again in post-coronavirus China. The trade war with the U.S. seems to have been put on the back burner for the moment, reducing fears it could escalate, tanking new car demand.
Tempering the positives are ongoing worries, including reduced subsidies for electric cars. The coronavirus may have already swept through China, but there are concerns that it will trigger a global recession. That would impact consumer spending in China. In addition, Nio now has a formidable competitor in the luxury EV segment on its home turf, in Tesla.
There is potential for the company to hit its stride and start living up to expectations. There are bulls who see Nio stock topping $12 in the next 12-months — which would beat the company’s record $10.01 close from last March. However, a lot would have to go right for that to happen.
With so many balls in the air, investment analysts are largely taking a wait-and-see approach to Nio, sticking with a “hold” rating. The potential is there, but it seems like a risky bet right now, especially with Tesla ramping up and the risk of further coronavirus-fuelled instability.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
