What’s the next move for Nio (NYSE:NIO)? Thanks to ‘EV Mania,’ Nio stock has been one of this year’s top performers. Shares have soared over 718% in the past six months, and a staggering 1300% in the past twelve months. But, with the enthusiasm that drove this stock and its electric vehicle peers to new highs simmers down, it may be time to cash out.
How so? For starters, across-the-board, EV stocks have gotten ahead of themselves. Sure, there’s no denying that electric vehicles are a megatrend that’s been accelerating as of late. With the prospect of wide scale adoption (especially in Nio’s home market of China) over the next decade, there’s much to back the “story” behind this “story stock.”
Yet, investors today are pricing this as if its well on its way to becoming the “Tesla (NASDAQ:TSLA) of China.”
Sure, it’s been no slouch in the growth department as of late. But, as InvestorPlace’s Ian Bezek recently discussed, there’s plenty of reason why “Nio stock isn’t the next Tesla.”
That being said, in a few weeks there could be an indirect factor that sends this stock higher yet again. With this in mind, expect the stock’s strength to continue for the time being. Nevertheless, don’t “let it ride.” If you bought in at lower prices, seize the opportunity, and sell now, while shares remain above $20 per share.
Rising Deliveries Have Helped, But Nio Stock Gains Mostly Driven by ‘EV Bubble’
It’s not just the overall enthusiasm for EV stocks that driven Nio higher in recent months. The rapid rise in vehicle deliveries has been another factor moving this particular EV play higher. In September, the company delivered 4,708 vehicles, an 133.2% increase year-over-year (YoY). For the third quarter, vehicle deliveries rose 154.3% YoY, to 12,206 vehicles, well over guidance of 11,000-11,500 vehicles.
Yet, does this dramatic reversal of fortune for the Chinese EV maker warrant the stock’s parabolic moves these past twelve months. Hardly. Sure, after materially improving its performance, shares deserve a three-digit boost from their lows set in 2019. But, today’s share price (around $22 per share) is almost entirely due to “EV Mania.”
The question now is when, not if, the “EV Bubble” pops. Stocks in this hot sector have cooled down as of late. Nio stock has been holding steady at this price level so far this month. And the big daddy of them all, Tesla, continues to trade just around $450 per share.
But, despite this sector treading water near all-time highs, a sell-off is inevitable. Like in past bubbles, there is a sound rationale to the initial enthusiasm. But, after the mass inflow of speculators, things have gotten out of hand.
That’s what’s happened here, making a correction a near-certainty. Yet, I concede an upcoming event, while not very relevant to this company’s prospects, could give shares yet another boost.
How The U.S. Elections Could Help This Chinese Stock
While I believe an EV sell-off is on the horizon, I concede that with the upcoming U.S. Presidential elections in November, there may be more runway for this “too hot to touch sector.”
How so? The EV sector could see another boost, if the Democratic party retakes both the White House and the U.S. Senate. Based on Joe Biden’s remarks regarding the expansion of electric cars, and his party’s interest in green initiatives if they control both houses of Congress, it’s hard not to see this sector make another move higher post-election. And, while Nio has zero exposure to the U.S. electric car vehicle market, a rising tide will lift all boats.
But, this indirect positive factor may be the last hurrah for this stock, and the EV sector overall. As speculators cash in on their fast gains, and Wall Street reassesses how quickly this sector will grow, names across the space could see significant moves lower.
So, how far could Nio stock fall? Goldman Sachs’ Fei Feng, one of the few Wall Street analysts assigning shares a “sell” rating, has a price target of $7.70 per share. With this in mind, it’s reasonable to assume an EV selloff may push this stock back to the single-digits.
Sell Into Today’s Strength While It Lasts
Continued enthusiasm for EV stocks is what’s keeping Nio near its all-time high. And, with a possible indirect catalyst less than a month away, shares will likely hold on for now at today’s price levels. Yet, given this stock has gotten ahead of itself, like its peers in this hot sector, an across-the-board correction is inevitable. In such a scenario, shares could easily fall back tot he single-digits.
Sure, you can’t predict when a sell-off will happen. But, to lock in this year’s epic gains, the best move for now is to sell into strength while it lasts for Nio stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.