With 2020 in the books, it’s fair to say it was a spectacular year for electric vehicle (EV) equities, particularly those of the Chinese variety, such as Nio (NYSE:NIO). All NIO stock did last year was jump 1,103.48%.
In terms of delivery credibility and sales, Nio is perhaps the closest thing investors have to Tesla (NASDAQ:TSLA), warranting the often used “Tesla of China” comparisons. Yes, there are critics and they assert that with the spate of new publicly traded Chinese EV makers, it’s only a matter of time before the bubble bursts.
It remains to be seen if and when this bubble pops or if it’s even a bubble at all. What is clear is that there are tailwinds for Nio and rivals, including EVs reaching price parity with internal combustion engines over the next three or four years, which is sooner than originally forecast.
Additionally, China has the world’s worst pollution problem and is leaning on EVs as part of its efforts to enhance air quality and reduce dependence on fossil fuels. On that note, there’s ample domestic support for Nio, including a $1 billion loan from Beijing that acted as a lifeline for the then struggling automaker and an investment from technology behemoth Tencent Holdings (OTCMKTS:TCEHY).
While Nio isn’t a state-owned enterprise (SOE) in the truest sense of the term, Beijing is invested in the company’s success and that’s a positive for investors with a volatile stock in a still nascent industry.
NIO Stock Faces Imminent Test
Speaking of its relationship with the Chinese government, the Chinese Ministry of Finance recently announced that it’s trimming subsidies on new EVs by 20% in 2021. That amounts to a roughly $700 subsidy reduction for Nio’s newest EC6 model.
Nio is responding by telling would be customers that if they purchase the EC6 by January 10, they can get the 2020 subsidy with Nio picking up the difference. That’s one near-term factor that could figure into the NIO stock equation. The other is Nio Day on Jan. 9.
That event could bring highly anticipated announcements, including a new vehicle reveal. Speculation is swirling that Nio could unveil its first luxury sedan concept, one aimed at the Audi A7 or the BMW 7 series. There’s also chatter the company will introduce a 150-kilowatt hour battery pack that’s compatible with all of its models. Assuming that happens, there’s stock-moving potential there because it would increase range on Nio vehicles while compelling existing owners to upgrade to the new pack. Translation: That’s a new revenue stream.
Analysts see opportunity in Nio Day. Ahead of the event, Bank of America analyst Ming Hsun Lee reiterated his “buy” rating on the stock while lifting his price target to $59. That implies upside of 21% from where Nio settled on Dec. 31.
For Investors, It’s About Realistic Expectations
Coming off a year in which it posted a four-digit gain and trading at 48x sales, NIO stock is expensive, but that doesn’t mean investors shouldn’t nibble at the stock, particularly on pullbacks. It’s more about being realistic from here. Can Nio run higher in 2021? Absolutely. Is another gain of 1,100%-plus in the cards? Probably not.
Keep in mind, Nio is still an evolving company. It wasn’t that long ago that survivability was a real issue for investors to mull with this name. Now, it’s lynchpin the world’s largest EV market.
Speaking of that, there could be 125 million EVs on the road by 2030 with almost half being found in China. That says there’s still plenty of long-term growth ahead for Nio, particularly if executes on boosting range capacity and new vehicle debuts.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
