The last time I weighed in on Nio (NYSE:NIO) stock, I said it should be avoided.
“With a sizable cash burn rate, coupled with going concern issues from the company, and the coronavirus, it’s best to avoid Nio. At this rate, NIO stock could be headed to $0. I would honestly avoid this stock at all costs. There’s nothing that can save it at this point.”
At the time, Nio could barely keep its head above water. Its cash balance wasn’t enough to provide enough capital over the next 12 months. The company even said there was “substantial doubt” in its ability to continue as a going concern.
That was on April 3, as NIO stock traded at a low of $2.33.
Embarrassingly, I was wrong. Shortly after NIO stock exploded to $12. Even with all of the chaos, concerns, cash problems and substantial doubts, the stock exploded higher.
All thanks to growing, explosive sales numbers over the last few months.
If NIO can continue to produce strong sales, the stock could retest its prior high of $16.44.
Goldman Sachs Says the Rally Is Overdone
In July, Goldman Sachs’ analyst Fei Fang downgraded the stock for the second time to “sell” on valuation concerns, noting the latest rally represents “over-optimism” in the stock.
While a good deal of optimism has been priced in, we could see further upside. That is, if the company can continue its string of solid monthly delivery numbers.
In June 2020, Nio delivered 3,740 vehicles, up nearly 180% year over year. That included 2,476 E6 SUVs and 1,264 of its ES8 models.
“We are pleased to deliver solid results driven by our competitive products, superior services and expanding sales network,” CFO Steven Feng said. “Our deliveries in the second quarter of 2020 exceeded the high end of our earlier projection, and we are confident that our goals on gross margin and operational efficiency will be achieved.”
For May 2020, it delivered 3,436 vehicles, including the delivery of 2,685 ES6 models. For April 2020, deliveries were up to 3,155 for the month, a growth rate of 181% year over year, and 106% month over month. Better, for the second quarter of 2020, NIO delivered 10,331 vehicles, an increase of 191% year over year.
This will be a significant positive for the company when it releases earnings.
NIO Stock Could be Fueled by a Massive EV Boom
China wants to see new energy vehicle sales of at least 25% by 2025.
So far, it seems to be off to a good start. After all, “China’s market for NEVs — which include plug-in hybrids, battery-only electric vehicles and those powered by hydrogen fuel cells — has been a bright spot in an otherwise lackluster car market, with sales jumping 62% last year, versus a 2.8% drop in all car sales,” says Reuters.
At the same time, NIO stock is being fueled by massive EV demand we’re seeing all over the world.
By 2025, EVs could account for a third of all auto sales. By 2030, EVs could surpass internal combustion engine vehicles with a market share of 51%, according to a new study from the Boston Consulting Group.
The Bottom Line on NIO Stock
Months ago, Nio could barely keep its head above water. Its cash balance wasn’t enough to provide enough capital for the next 12 months. The company even said there was “substantial doubt” in its ability to continue as a going concern.
Then, all of a sudden, NIO stock exploded to a high of $16.44 on improving sales, global demand for EVs and hope that second-quarter earnings could be solid.
From here, I’d like to see NIO challenge its prior high of $16.44 following the Goldman Sachs downgrade. At the same time, I’d be cautious. NIO stock is extremely volatile.
“Just look at what [the] NIO stock price has done since the company has been public. It’s gone from $10, to $6, to $11, to $1, to $15, to $12. All in just two years,” says InvestorPlace Markets Analyst Luke Lango.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.