Ladies and gentlemen, start your pun engines: The electric vehicle sector is…charged! Juiced! Rolling! Built for speed! Shooting sparks! Hitting the road! Kicking butt! Yeah, so the last one wasn’t a pun. Sue me. Or better yet, trust me: Don’t waste your time harassing a halfwit writer when you could and should take a gander at one of 2020’s big EV winners, Nio (NYSE:NIO) — and by extension, its Nio stock.
The Chinese automaker has gotten so much attention that apparently it’s bunched the undies of Elon Musk, CEO of Tesla (NASDAQ:TSLA). Nio has been dubbed “the Tesla of China,” which you’d think he’d find a compliment. But with some investors crowing that Nio stock has shot up in 2020 by more twice as much percentage-wise, Musk published a cryptic Tweet during the wee hours of Nov. 6: “420 is ten times better than 42.” That’s not a clue to further antagonize followers of QAnon but rather an apparent reference to Tesla-versus-Nio share prices.
Truth is, there’s plenty of space in Wall Street’s EV parking deck these days. Even disgraced companies such as Nikola (NASDAQ:NKLA) can still make a go of it; their stock is up 65% since late September. So why begrudge Nio stock its amazing success story? The question is whether the company’s momentum, and shareholder enthusiasm to match, will turn 2021 into a victory lap.
Wall Street Stoked on Nio Stock
It’s a good thing I’m writing this after the market close, because Nio stock is ratcheting up at such a rate that I’m afraid I might miss something. Speaking of which, investors on the sidelines may feel this EV hotshot has left them in the dust. Does buying now amount to buying at peak?
At first glance, it might appear so. Though the company isn’t turning a profit, Nio stock has more than doubled in the last month alone. And if you bought $1,000 worth of Nio shares in January, you’d be sitting on $14,500 today. Who needs gas in the tank when you’ve got that kind of voltage?
But to my eye, Nio stock still has plenty of room to grow. You’d think it was almost ancient news that on Nov. 18, analysts for Bank of America (NYSE:BAC) roughly doubled their Nio price target from $23 to a Street high of $54.70. Quoth the Nio bugs, “Been there, done that.” The stock broke $55 on Nov. 23.
Meanwhile, in China…
Accounting for the nuts and bolts of an American manufacturer is tough enough. Given that Nio is based in Shanghai, the task gets trickier — but there are windows into its operation that shareholders can’t ignore. Share prices and reality often correlate poorly and in the case of Nio stock, it took $1 billion in funding from the city of Hefei to keep the EV maker going through the worst of the novel coronavirus.
In the U.S. that’s called a bailout, though Chinese officials might prefer the term subsidy and investors here might shrug it off as “more money.” Yet as The Verge noted, the deal meant “an extra layer of abstraction placed between [shareholders] and the company’s most valuable assets.”
Nio has regardless acquired the funds, equivalent to about 1.3% of its market capitalization. Having survived the sales slump in its home nation, Nio can now look forward to a new year full of possibilities, including possible entry into a market Musk would prefer to have all to himself: America.
Climb in, There’s Room for Everyone
Once President-elect Jospeh R. Biden is sworn in on Jan. 20, chances are that Nio investors will want to know more about what’s going on in that office the company maintains in San Jose, right up the street from all those Silicon Valley tech hotshots. With the expected thaw in U.S.-China trade relations, Nio can begin to take a serious look at selling cars here. If and when that news gets out, expect Nio stock to spike. Meanwhile, Nio also maintains offices in London and Munich, indications of its ambitions in Europe.
What’s more, Nio stock represents investment in an EV outfit that actually makes vehicles people can — gasp! — buy and drive. Unlike Nikola, Fisker (NYSE:FSR) and Lordstown Motors Corp. (NASDAQ:RIDE) — companies with combined sales of bupkis — Nio sold 26,375 vehicles in China as of Oct. 1, up 114% year-over-year; the company also set a monthly sales record in September.
Much will be revealed at least in the short term when Nio releases its next quarterly earnings report in March. Wall Street already expects losses of 56 cents per share, giving it an easy target to beat, with profitability coming by fiscal year 2022. But I don’t think investors in Nio stock will have to wait nearly that long for a rally: or in this case, for the rally to continue.
On the date of publication, Lou Carlozo held long positions in NIO, TSLA and BAC.