Despite the run it went on through the first eight-and-a-half months of 2020, I anticipated that its September swoon would impede its progress into the $20s, something my InvestorPlace colleagues were sure would come soon enough.
It did. And then some. Since Sep. 16, Nio’s share price has increased by almost 50% through Oct. 19. Nio is the top-performing stock (market capitalization greater than $10 billion) on the New York Stock Exchange in 2020, up 587.3%, more than 225 percentage points clear of GSX Techedu (NYSE:GSX), the second-best performer.
As for Tesla (NASDAQ:TSLA), I argued in my September article that while a fan, I didn’t see TSLA stock catching Nio in 2020. With approximately 73 days left in the year, Tesla has a year to date return of 414.9%, 172 percentage points behind Nio. It’s not insurmountable but unlikely for Tesla to catch Nio.
As for anyone who hasn’t bought Nio already, you’re probably wondering if it’s too late to make money off its stock.
While I don’t believe you should ever make an investment based on the fear of missing out, I do think a three-to-five-year hold will still make you money. Here’s why.
Analysts Love Nio Stock
On Oct. 14, JPMorgan upgraded Nio to an “overweight” rating while raising its target price to $40 by June 2021. Based on a $27.50 share price, that’s 45% upside over a little more than eight months. I’ll take this kind of return all day long. At the same time, Citibank raised its rating to a “buy” while lifting its target price by 83% to $33.20.
Of the 16 analysts covering Nio, they have a median 12-month price target of $135.47. I’d be more comfortable with this kind of estimate if 30 analysts were covering the stock. As it stands, the high estimate is $269.54, with a low estimate of $44.12.
In August, only five analysts rated Nio a buy. Today, that’s up to nine analysts. Only two have a sell recommendation.
I would say that the best bet would be to assume that the low estimate is the most realistic over the next 12 months. If accurate, it would still provide 60% upside. That wouldn’t be 2020 returns, but it’s unlikely that investors will catch lightning in a bottle a second time in 2021.
I hope I’m wrong.
Nio Keeps Delivering
Nio released its September and Q3 2020 delivery update in early October and the news was good.
September was a record with 4,708 vehicles delivered — 3,210 ES6s, 1,482 ES8s, and 16 EC6s — up 133.2% over last year. In the third quarter, its deliveries increased 154.3% to 12,206, and through the first nine months of 2020, it delivered 26,375 vehicles, 113.7% higher than last year — the 2020 sales achievements despite being in a pandemic for several months.
Of these statistics, however, it is the fact that it began delivering its sharp-looking EC6 coupe in late September that should encourage investors heading into 2021.
This is an electric vehicle maker that seems to be hitting its stride. With a $37 billion market cap, its financing issues are very much in the rearview mirror.
As recently as November 2019, I was extremely skeptical about its ability to stay afloat. Fortunately, the company’s Hail Mary pass was caught by three visionary investors (the Hefei municipal government was one of them) in late April, providing Nio with $1 billion in funding.
That changed my tune. It’s been clear sailing ever since.
The company expects to become profitable in the next 12 to 24 months once it doubles its current monthly sales. With three SUVs in the fold, it plans to bring out something different for its fourth vehicle launch.
“We started with SUVs [the ES8 and ES6] because we leveraged the same platform and our third model [the EC6] that is launching now is a coupe-styled SUV. In China, the passenger vehicle market is basically 50-50 for sedans and SUVs, but with a much faster growth for SUVs,” Nio president Lihong Qin told Automotive News Europe contributor Nick Gibbs in June.
“Under our plan we aim to launch a new product every year. We will start deliveries of a new product next year. I won’t say what it is, but it’s not going to be an SUV.”
So, for the remainder of 2020, Nio will continue to push its three-vehicle lineup. Next year it will probably add a sedan or perhaps a sporty coupe. Whatever it does, Europe will play heavily in its expansion outside China.
The Bottom Line
Nio currently trades at 25 times sales. If you assume that Nio doubles sales in 2021, and the multiple is maintained, there is justification for its stock price doubling over the next year.
However, if you feel that its price-to-sales multiple should be closer to Tesla’s at 16 then it’s unlikely that NIO stock will double in 2021.
Nio delivered 20,565 vehicles in 2019. Through the first nine months of 2020, it’s up to 26,375. The fourth quarter of 2019 saw Nio deliver 8.224 vehicles. Assuming a conservative increase of 20% for Q4 2020, it will deliver 36,243 vehicles in 2020.
While I believe the actual number will be well over 40,000, if you double its 2020 deliveries based on my estimate, it suggests 72,488 vehicle deliveries in 2021.
In Q2 2020, it had average revenue per vehicle of $47,759 based on 10,331 vehicle deliveries and $493.4 million in vehicle sales. Extrapolate that over 72,488 vehicles, and you get a market cap of $71 billion based on 2021 sales of $3.46 billion and a P/S multiple halfway between Nio’s current multiple and Tesla’s.
Unless something unforeseen happens, I believe there is still plenty of room on the Nio bandwagon.
Long-term, Nio stock remains a definite buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.