2020 has been a solid year for Nio (NYSE:NIO), the Chinese electric vehicle (EV) maker. Since the start of the year, the stock is up over 900%. Put another way, the proverbial $1,000 invested in early January would now be worth well over $10,000.
For comparison, SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL) is up about 44% in the same period. Therefore, many investors are wondering if they are late to the party. Today, we will look at Nio’s prospects and discuss whether it remains a buy despite the stellar run-up in price.
EV Sales In China Are Growing
China is the world’s biggest electric vehicle market. In 2019, nearly 1.2 million EVs were sold in the country, representing an increase of 3% year over year. Global sales numbers in 2019 were 2.3 million, showing annual growth of 9%. Over half the EV sales worldwide some from China. In 2019, the metric was about 35%.
According to Reuters, “New energy vehicle (NEV) sales in China surged 26% on year to 109,000 units in August for their second consecutive month of gain … NEV sales are likely to reach 1.1 million vehicles, down around 11% from last year … NEVs include battery-powered electric, plug-in gasoline-electric hybrid and hydrogen fuel-cell vehicles.”
Analysts were pleased with the numbers that showed a better-than-expected market recovery from the adverse effects of the novel coronavirus.
Benjamin K. Sovacool of the University of Sussex, U.K., and his colleagues point out, “[C]ost considerations are an important factor in the willingness for Chinese consumers to adopt EVs, but not for everybody all the time. Indeed, when cost considerations are not important, consumer perceptions about the features of electric vehicles, benefits of electric vehicles and policy support for electric vehicles come into play.”
Put another way, the Chinese market is a competitive one, as summarized by Professors Paul MacDuffie of the Wharton School of the University of Pennsylvania and Willy Shih of Harvard Business School.
Successful companies can possibly look forward to years, if not decades, of growth and creating shareholder value.
The Impressive Run in Nio Stock
Investors have made 2020 the year of electric vehicles and alternative energy. They have also been looking for the next Tesla (NASDAQ:TSLA), which has gone up over 400% year-to-date.
Nio, founded in China in 2014, currently sells cars exclusively in China. In late mid-March, Nio’s price was around 2.5. By mid-July, it went over $15. It has recently made an all-time high and is hovering around $40.
Recent metrics from China show that in the first half of 2020, Nio sold 14,169 EVs. By comparison, BYD, which has the top spot, sold 60,253 vehicles, followed by Tesla (49,714 EVs).
Recent research led by Gaohan Zhang of Shanghai University highlights, “NIO combines electric cars with the mobile Internet in an attempt to redefine the user experience in the automotive industry … NIO expects to redefine all processes that serve customers and provide them with a more enjoyable experience than expected.”
Nio’s top model is the ES8 (a seven-seat SUV). It also has two other vehicles, the ES6 (a five-seat SUV) and the EC6 (a 5-seat premium electric coupe SUV).
On Nov. 2, management provided its October 2020 delivery update. Management said the following in that report:
- NIO delivered 5,055 vehicles in October 2020, increasing by 100.1% year-over-year
- NIO delivered 31,430 vehicles in 2020 in total, increasing by 111.4% year-over-year
- Cumulative deliveries of ES8, ES6 and EC6 as of October 31, 2020 reached 63,343.
Nio is still a relatively young company, working to grow into a sustainable and profitable operation. Although there will be bumps along the way, the long-term prospects are improving.
The Bottom Line on Nio
Nio is expected to report Q3 earnings on Nov. 17. The shares will likely be volatile at the time. Short-term traders may also make directional bets, contributing to high volatility.
However, long-term investors can regard any dip in the shares, especially toward the $30-level, as a good opportunity to buy. If you already own the stock, you might want to stay the course.
If you are an experienced investor in the options market, you may also consider using a covered call strategy with approximately a six-week time horizon, i.e., Dec. 18 expiry. Such a covered call position would offer some downside protection and decrease portfolio volatility. You would also be able to participate in a potential up move.
Finally, if you would like to invest in the growth of EVs and clean energy, you may also consider buying an exchange-traded fund (ETF).
In addition to HAIL, examples of such funds include Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT), the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV) or the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
