Chinese electric vehicle maker Nio (NYSE:NIO) is not without risk for investors. But Nio stock is one of the best positioned to ride the growth in electric vehicles.
What distinguishes Nio from other electric vehicle start-ups is that like Tesla (NASDAQ:TSLA), it is manufacturing and delivering premium electric vehicles. Nio published second-quarter results at the start of July that showed the company delivered 10,331 vehicles, a 191% year-over-year increase and up 169% from the first quarter.
Nio’s deliveries for the first half of 2020 totaled 14,169 fully electric cars. That’s a fraction of the vehicles sold by established automakers such as Toyota (NYSE:TM) and General Motors (NYSE:GM). But it is a lot more than other electric vehicle companies, most of which are still in the design phase.
By comparison, Tesla delivered 179,050 vehicles in the first half of this year.
The solid performance sent NIO shares rallying 50% in July to $12.70 per share. At the start of 2020, Nio stock was trading at $3.72 a share. The year-to-date appreciation of nearly matches the growth of TSLA stock.
Nio, and its investors, are hoping to ride consumer demand for electric vehicles and grow exponentially in the coming years just as Tesla has managed to do.
Last week, Nio unveiled details of its EC6 crossover SUV, noting it will be priced at about $53,000 before subsidies. The coupe version of the ES6 mid-sized SUV will start deliveries this September. It will compete directly with Tesla’s Model Y compact SUV that is scheduled to launch in early 2021.
Getting to market before Tesla, especially in its native China, could give Nio a competitive advantage.
Cash Position Gets a Boost
Also in July, Nio secured credit lines with six Chinese banks totaling $1.5 billion. Shoring up its cash position came as a huge relief to Nio investors as the company had started 2020 with a dwindling amount of cash.
Nio has also raised more than $1 billion from Chinese government agencies, who are championing the Shanghai-based company as a competitor to American Tesla. The company also received a new capital infusion from early investor Tencent Holdings.
The new money provides Nio with adequate liquidity while it develops and launches new electric vehicle models.
In terms of financials, Nio’s revenue grew from $720 million in 2018 to $1.12 billion in 2019, as it began to deliver its first vehicles. This year, sales are forecast to grow by 65%. This growth is driven by strong sales of the company’s ES6 electric SUV and the launch of the smaller EC6 SUV, which is expected to commence deliveries by year’s end.
Revenue for full year 2020 is expected to rise to $1.78 billion with deliveries of 35,000 vehicles. Following the launch of the more compact EC6 crossover SUV, Nio revenue is expected to reach $2.75 billion in 2021.
These forecasts will be impressive if they turn out to be true and would rival the growth of Tesla.
Bears Short Nio Stock
While Nio appears to be firing on all cylinders, several analysts have turned bearish on the stock in recent weeks, even as it continued to run higher.
Nio stock pulled back 14% after Goldman Sachs (NYSE:GS) slapped a “sell” rating on it. Goldman Sachs has a price target on NIO stock of $7 a share, which would be about 45% lower than its current price.
Many institutional investors shorted Nio stock as they have Tesla, saying much of the recent stock appreciation was driven by retail traders, notably on Robinhood. Like Tesla, many analysts and professional traders feel Nio shares are grossly overvalued and don’t reflect the company’s financial position.
However, there is little agreement when it comes to Nio stock. Among 12 analysts, the median price target is $45.72 a share, with a high estimate of $112.02 and a low estimate of $7.03 per share. That’s quite a price range, and the median estimate represents a more than 250% increase from the current share price.
The current analyst consensus is to “hold” Nio stock. There are currently three “buy” and three “sell” ratings on the company’s stock. As with Tesla, analysts can’t seem to agree on where Nio stock is headed over the coming 12 months.
The Bottom Line on Nio Stock
There are many parallels between Nio and Tesla, and their stocks have been on similar growth trajectories this year.
Whether Nio can ultimately compete against and rival the manufacturing and sales success of Tesla remains to be seen. But at under $15 a share, Nio stock is comparatively cheap compared to TSLA shares hovering near $1,500 per share.
Investors looking for exposure to the hard charging electric vehicle market, should buy NIO stock. But do so knowing that there are risks with both the electric vehicle market and Chinese start-ups.
Accounting frauds continue to plague Chinese companies and political relations between the U.S. and China remain extremely strained.
Nevertheless, Nio does hold promise – both as an electric vehicle manufacturer and as a stock. Investors who pass up the chance to buy Nio stock now may kick themselves later on.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole held shares of GS.
