Last year’s bullishness regarding Nio (NYSE:NIO) stock is changing to trepidation in 2021.
Many investors are now worried that Nio has become part of an EV bubble that’s bound to burst. But I don’t expect that to happen.
Last year was a crucial period for electric vehicles. Of course, Tesla (NASDAQ:TSLA), the EV pioneer, rightfully grabbed the bulk of the headlines about the EV sector.
And TSLA stock soared 652% in 2020.
Not to be outdone, Nio jumped by a meteoric 1,404% in 2020.
Many pundits now say that these two stocks have reached unsustainable levels. But investors should not fear that Tesla and Nio are part of a bubble that’s bound to burst. Although they delivered unusually high gains, that doesn’t mean that they are bound to depreciate.
Nio’s January Sales
I remain a staunch supporter of Nio because it continues to do exactly what a young, burgeoning company should do: deliver strong sales growth.
Whenever I read articles claiming that Nio is more hype than substance, I tend to dismiss them. Hype is not a word I associate with a company that breaks sales and delivery records quarter after quarter and month after month.
What’s really based on hype are the blind bets many investors have been making on entirely unproven EV SPACs.
There are metrics which make Nio look like a terrible investment. Its shares’ price-sales ratio is higher than all but 3.5% of automotive stocks. And most other traditional “value” metrics will paint a similar picture.
But those pictures are skewed.
Much more important is the fact that Nio delivered another record month of sales in January, as its vehicle deliveries jumped 352% year-over-year to 7,225. And the company has delivered close to 83,000 vehicles in its lifetime.
A Sovereign Wealth Fund Increased Its Stakes in Nio and Tesla
South Korea Investment Corporation recently strengthened its broad bet on the EV sector. The fund manages $20 billion of assets and very recently upped its stake in Nio and Tesla. In 2020 the fund increased its position in Nio by 85% and raised its stake in Tesla by 59%.
As a result, the fund is now investing a substantial amount of the funds of the South Korean Government in EV companies. The value of the fund’s Nio stake is about $30 million.
Sovereign wealth funds tend to take a more traditional, conservative approach to investing. Thus, it appears that the outlook of Nio and Tesla has become more stable.
Coming to America?
Nio’s vehicles are currently not sold in the U.S. China is a bigger market for EVs than America, and Nio is of course a Chinese company. So its focus on China is perfectly logical.
Yet the U.S. is also a massive and attractive market. So investors must wonder if and when Nio might possibly enter America.
A recent article in Barron’s indicates that the automaker is at least in the beginning stages of such a move. According to the publication, a Deutsche Bank analyst discovered a LinkedIn posting seeking a business planner who will create a plan to enter the U.S. market.
Although Nio will not enter the U.S. for years, the ad is a strong signal of the company’s intentions.
The Verdict on Nio Stock
I remain a fan of Nio. Its massive gains in the past year will give some potential investors pause. But I believe the company remains a great investment. It’s still young and has plenty of operational kinks to work out. But again, its sales are growing rapidly.
There is no stock like Nio, so resist the urge to compare it to other names.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
