Chinese electric car maker Nio (NYSE:NIO) was written off by many last year. However, the company has managed a huge turnaround in the second half of 2020. And so has Nio stock.
Trading below $2.40 back in March, NIO began to surge at the end of May and hasn’t looked back. The September tech stock selloff? NIO shares did drop slightly, but that was a minor road bump.
The company quickly recovered, then resumed gaining ground. And it’s been propelled to new heights by a Deutsche Bank upgrade and analyst claims that Nio could be the “next iconic auto brand.”
Nio stock closed at $21.22 on Wednesday, another day of gains after popping nearly 11% on that widely reported upgrade.
After struggling mightily in 2019, Nio is firing on all cylinders and this company’s shares now earn an ‘A’ rating in Portfolio Grader. The question is whether Nio stock still has upside, or if the massive growth over the past six months will hit a wall.
The Deutsche Bank Upgrade
Nio stock has been performing impressively in the second half of 2020, but it really hit the headlines on Tuesday. Deutsche Bank announced it is continuing Nio’s ‘buy’ rating, but upped its 12-month price target to $24. That implied a 28% upside based on share prices at the time.
Deutsche bank analysts weren’t shy about their bullish view on Nio’s prospects. In a note to investors, they said that Nio could become “the next iconic auto brand.” They wrote that as consumer adoption of battery-powered cars increases, and word of mouth spreads:
“… we believe Nio can take material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services.”
That word of mouth factor can be very important. According to Deutsche Bank, Nio’s average customer-referral rate jumped to 62% in the first half of 2020, compared to 52% in 2019. A separate study by a leading Chinese online auto site found that Nio had a higher referral rating in China than many European luxury auto brands — and also topped the rating for America’s premium electric car maker. More customer referrals mean more sales and word of mouth is the best advertising an auto maker can hope for.
The news of Deutsche Bank’s upgrade and rosy analysis resulted in a big pop for Nio stock, taking it to yet another record high close.
Factors in Nio Stock Momentum
At this time last year, Nio was in an unenviable position. So were Nio investors. It’s amazing how much can change in that time. Just look at the company’s big announcements over the past month to get an idea of what a turnaround looks like.
On August 11, Nio reported its second quarter earnings. Deliveries were 10,331 compared to 3,553 for the second quarter of 2019. Revenue of $526.4 million was up 146.5% year-over-year. Vehicle margins hit 9.7% compared to negative 24.1% in the second quarter of 2019.
On August 20, the company announced a new Battery as a Service (BaaS) subscription. The idea has potential to overcome one of the pricing issues with electric cars: the expensive battery pack. With BaaS, Nio customers can purchase a new car and lease the battery — reducing the initial purchase cost by as much as $14,500. Leasing also lets them swap out a depleted battery for a fully charged one at one of Nio’s 143 battery stations across China. They can also buy the battery outright, then bring it along to use in a subsequent new Nio electric car.
On September 3, Nio released its August 20 vehicle delivery update. The company reported August deliveries were up 104.1% YoY. The 3,965 deliveries set a new monthly record. In addition, Nio says its production capacity will hit 5,000 units per month in September.
Bottom Line on Nio Stock
Nio stock would have been a tough recommendation a year ago. It seemed to be circling the drain and dropped to the $1.50 range. 12 months later? Nio has completely turned the situation around and its stock is up 1,300% from those October 2019 lows. The electric car maker is on a path to success, and the good news is there’s still upside to Nio stock — even after its spectacular performance over the past six months.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
