Behold a pun that while it may sound flat-tire tired, still has mileage aplenty: Investors in Shanghai-based electric vehicle company Nio (NYSE:NIO) went for quite the joyride in 2020. At least where their bankrolls were concerned. Last year, NIO stock shot up 1,173% with speed to rival a Lamborghini.
Then again, those smart and/or lucky enough to plunk down $8,000 on Nio at the start of the year made enough to put 20% down on a Lamborghin Aventador S Roadster.
And when tricked out, that Lambo goes for, oh, about half a million dollars.
Many investors who love NIO stock would be content enough to land one of the company’s sleek ES8 SUVs or a compact EC6. Trouble is, that’s not possible for American drivers — not yet, anyway — as Nio serves China’s automotive market. But could that change? For indeed, much with Nio has changed in the last 12 months or so.
To be sure, NIO stock got plenty of help through the company’s financial moves that, depending on your viewpoint, were either shrewd or urgent. Who knows? Maybe both. In February 2020, it inked a $1.4 billion bailout deal with the Chinese government to create a second headquarters in Anhui province. And in December, it sold 68 million new shares, which raised close to $3 billion. Will the company need more such jumpstarts in 2021? Here’s how things look with the high beams on.
NIO Stock and the Post-Bailout Bounce
Coming as it did at the early spike of the novel coronavirus, that government bailout is looking like Chinese chump change today. As NIO stock flirts with $60 per share, Nio is worth an astonishing $97.21 billion. That’s more than the market capitalization of either Ford Motor Co. (NYSE:F) or General Motors Co. (NYSE:GM). In fact, if you combine the two Detroit automakers, Nio would be worth 80% of the total.
But don’t you rock down to Electric Avenue just yet, folks. (Apologies if you now have an Eddie Grant earworm.) Like any investment on a relentless climb fueled by speculation and exuberance, NIO stock may be in for a correction; Barron’s writer Al Root eludes to the “talk of bubbles coming” that pervades the EV sector today.
Thus I believe investors should remain vigilant, even as the company works to become profitable. Selling EVs is one thing, making a return on them quite another. Yet the current sales number definitely tilt in Nio’s favor and make a strong case for NIO stock’s continued momentum. As of Dec. 1, Nio delivered 36,721 vehicles in 2020, an increase of 111% year over year.
The ‘Tesla of China’ Car-relation
When NIO stock began to make analysts take notice, a somewhat facile nickname got attached to the company: “the Tesla (NASDAQ:TSLA) of China.” But if that Silicon Valley-centric moniker ever annoyed Nio CEO William Li, he might well find it amusing today. Very amusing. So amusing that the massive bulge in Nio’s coffers hurts.
Quoting Bernstein analyst Mark Newman, the Barron’s story notes that EV stock moves are “becoming self-reinforcing with Tesla.” That is, “Telsa goes up, then Nio goes higher.” I can buy this rough correlation because the two companies aren’t so much in lockstep. Rather, the rising tide for EVs that Tesla has created is floating Nio’s boat. (And you thought we were talking about cars.)
Maybe someday it will be the other way around. NIO stock outran Tesla shares in 2020 in terms of percentage gain, the latter going up 696%. I’m not sure how Elon Musk might feel having his company called the Nio of America. But hey, Elon babe: If the tire fits, change it.
An EV Winner for a Brand New Year
If you take Newman’s observation and flip it, any Tesla sneeze could make Nio catch a cold. Though viewed as the two-ton gorilla of EV companies, Tesla is still not immune to price corrections, selloffs and profit-taking. Even if it recovers from any such dips, would it by default push Nio off its share price cliff?
I’m not so sure. In fact, a company closing in on a $100 billion market capitalization should boast enough muscle to sustain itself through a year’s worth of unprofitable quarters. Not that this prospect seems to bother the Wall Street cognoscenti. The stock is well overweight, with 10 of 18 analyst firms call NIO stock a buy (though two do label it a sell, with the remaining six calling it a hold).
I’ve been a fan of NIO stock for some time and continue to contend that this company, while it may hit some speed traps and potholes in 2021, still represents an excellent investment opportunity. The stock market calculus of 2021 demands that investors weigh the connection between maturing companies and sectors. Nio and the EV marketplace are growing up together.
Meanwhile, petroleum in the U.S. is on the brink of entering sunset mode. The Biden administration is taking climate change seriously and has now banned drilling on federal lands. EVs are gaining sales momentum. And with any luck, Niomobiles will land on these shores in time for investors and drivers to reap the benefits.
And yes, pun again intended: That is electrifying.
On the date of publication, Lou Carlozo held long positions in NIO and TSLA.
