It has been quite the joyride for Chinese premium electric vehicle (EV) maker NIO (NYSE:NIO) in 2020.

Year-to-date, NIO stock is up 130% — including a near 300% rally from its Covid-19-inspired March lows — as the fundamentals underlying the company have dramatically improved.

That is, vehicle delivery trends have gone from declining in 2019, to surging higher in 2020. Revenue trends have followed a similar trajectory. Gross margins have gone from compressing, to expanding. Operating losses have gone from widening, to narrowing.

It only makes sense that, against those favorable shifts in fundamentals, NIO stock has gone from falling to rising.

This favorable shift in fundamentals will continue for the foreseeable future. As it does, NIO stock will keep rallying. Likely to levels above $10.

Here’s why.

EV Market Consolidation

It’s becoming increasingly clear that, when all is said and done, NIO will be one of two players left standing in what will be a huge premium Chinese EV market.

Long story short, on the heels of significant Chinese EV market growth in the mid 2010s, everyone and their best friend jumped into the market. As of 2019, there were over 400 EV manufacturers in China.

That’s just way too many. There’s basically only two dozen or so notable car brands in the world.

Now, that market is consolidating. Because of weak EV sales in 2019/20 thanks to trade war anxiety, a cut in EV subsidies and the novel coronavirus pandemic, many Chinese EV startups are closing shop in 2020.

What was a 400-company EV market in 2019, will inevitably turn into a two-dozen-or-fewer car market by 2025.

Amid this consolidation, China’s EV market will still grow. By a lot. Because the government continues to promote EV adoption. Because consumer awareness is rising, and because EV technology and infrastructure is only getting better and bigger.

The implication? If you project to be one of the companies that survives the great Chinese EV market consolidation over the next several quarters, then you have a really, really bright future.

NIO on the Right Side of the Tracks

NIO is on the right side of the tracks of the great Chinese EV market consolidation.

The premium EV maker has created a differentiated, aspirational brand to which Chinese consumers ascribe high-value. The company has also created a line of high-end, high-performance vehicles, for which demand is soaring. And the company is making great strides on the self-driving front, which could turn into a significant differentiation in the future.

As such, it should be no surprise that NIO has actually reported three consecutive months of 175%+ year-over-year delivery growth against the backdrop of an Chinese EV market that is shrinking on a year-over-year basis.

This trend will persist for the foreseeable future. As it does, NIO will increasingly turn into the biggest player in the Chinese premium EV market.

That market won’t be small.

The upper- and upper-middle-income bands in China account for about 10% of the total population. Chinese consumers also tend to have an affinity for premium products.

Combining those two realities, it’s very likely that the premium EV market in China becomes quite big at scale.

So long as NIO continues to execute against its huge opportunity in China’s premium EV market, then the company’s long-term growth potential will remain robust.

A Slightly Stretched Valuation

I’ve been a huge fan of NIO stock all year long. See here, here, here and here.

But, even as a long-term bull, I have to admit that the valuation on NIO stock is now getting somewhat stretched, though not entirely so.

My long-term model — which I believe continues to represent the most likely growth trajectory for the EV maker — pegs NIO’s deliveries north of 400,000 by 2030, revenues north of $16 billion and earnings per share around $1.20.

Assuming so, a market-average 17-times forward earnings multiple and 10% annual discount rate imply a 2020 price target for NIO stock of just under $9.

But that doesn’t mean it’s time to sell NIO stock.

Rather, because NIO stock has strong momentum today and because the company’s fundamentals and numbers will only get better over the next few months, NIO stock will keep charging higher. This thesis is supported by my bull case model, which calls for $1.50 in 2030 earnings per share. The same math above illuminates a path towards a fundamentally-supported 2020 price target of $11.

I’ve always said that $10+ prices are likely for NIO stock in 2020. I reiterate that claim today.

NIO stock will brush off minor valuation friction over the next few months and charge above $10.

Bottom Line on NIO Stock

While valuation is now more of an issue for NIO stock than it was three months ago, it’s still not a big issue.

The fundamentals continue to improve. The technical factors continue to exude strength. And there is a long-term bullish scenario here which fundamentally supports NIO stock above $10 in 2020.

The more NIO knocks it out of the ball-park with its delivery numbers in 2020, the more Wall Street will ascribe to that long-term bull thesis scenario, and the more likely NIO stock is to charge above $10.

My two cents, then, is simple. Don’t fade the rally. Stick with it. And enjoy the ride back to double-digit territory.