Can Nio (NYSE:NIO) stock continue on its torrid pace?
That’s the question investors will need to answer now that the share price of the Chinese electric vehicle maker has crossed $50 and continues to flirt with all-time highs. For the month of November, NIO stock rose 52% to close on Nov. 30 at $50.53 a share.
Year-to-date, the stock is up a staggering 1,250%.
On the first trading day of 2020, Nio stock was valued at just $3.72 a share. Now, Nio is seen as the leading electric vehicle maker in China and is second only to Tesla (NASDAQ:TSLA) in terms of its growth and future potential. But after running so high so quickly, many investors are rightly wondering if Nio stock is now overbought and due for a correction.
Let’s take a look.
Strong Results and Government Support
Nio’s financial results have been impressive lately and helping to drive the company’s share price to new heights. NIO’s total revenues increased 146.4% year-over-year in the company’s third quarter ended Sept. 30. Vehicle sales grew 146.1% from the same period of 2019. And gross profit turned positive for Nio from a negative year-ago value. In October of this year, Nio delivered 5,055 vehicles, up 100% from October 2019.
These are impressive results that demonstrate Nio is legitimate and moving in the right direction. While many electric vehicle makers are still at the drawing board phase, Nio is manufacturing and delivering actual vehicles.
In addition, Nio has the support and resources of the Chinese government behind it. The government in Beijing is endeavoring to have the entire country of 1.4 billion people be carbon neutral by the year 2060. A big part of achieving that goal involves shifting entirely to electric vehicles. Loup Ventures estimates that electric vehicle deliveries in China will grow to 5.1 million in 2025 and reach 13.3 million by 2035.
Beijing has anointed Nio as one of its domestic champions in the electric vehicle market and is invested in the company’s success, pushing the vehicle manufacturer to expand into Europe and North America. In 2019, Beijing literally pumped $1 billion into Nio. That kind of support can only help Nio succeed where other start-up automakers might fail. The Chinese government also provides generous incentives to encourage consumers in the country to buy electric vehicles.
Profitable By 2023
Analysts continue to believe in Nio’s growth potential. Bank of America forecasts that Nio will turn profitable in 2023, a year earlier than the bank had previously estimated. Bank of America recently raised its 2021 through 2023 sales volume forecast above consensus estimates, attributing the elevated expectations to a more positive view on Nio’s strategies and a potential overseas contribution beginning in 2022.
JPMorgan also sees Nio growing and competing successfully in the fast-growing electric vehicle market with a charging network, online customer community, value-added service and growing following among consumers in China. While Nio is going to face growing competition from Tesla, which just got approval to sell its Model Y sport utility vehicle in China, Nio is likely to still hold substantial market share in the world’s largest electric vehicle market. JPMorgan notes that 40% of Nio sales come from referrals by existing owners of the company’s vehicles.
NIO Stock Is A Buy
Electric vehicles are still an emerging market and China is still a country where transparency and the rule of law are works in progress. For these reasons, investors should be somewhat cautious when it comes to any electric vehicle manufacturers emerging from China.
However, there is no doubting Nio’s potential when it comes to sales growth and its future prospects. The fact that the company has the backing of the government in Beijing adds an additional level of protection for the company.
For these reasons, NIO stock is a buy.
On the date of publication, Joel Baglole held long positions in NIO and TSLA.