Consistently strong electric vehicle deliveries underline the electric vehicle boom. For Nio (NYSE:NIO), the prospects look brighter than ever. Nio stock has both upside and a great future ahead.
Nio posted strong delivery figures and is poised to build its market share in China. Plus, companies like General Motors (NYSE:GM) are increasing their investments in EV.
This further validates Nio’s competitive dominance as traditional automakers play catch up.
Investors have even more reasons to expect Nio’s growth to continue in 2021. Nio could also widen its lead against GM by considering global expansion plans sooner.
Strong EV Demand Lifts Nio Stock
Speculators bid up shares of mining companies in anticipation of falling battery supplies increasing raw material prices. This is a potential indicator for the continued increase in EV sales.
“The fundamental limit on electric vehicles right now, in general, is total availability of cells, what’s the output of factory cells in gigawatt hours,” said Tesla (NASDAQ:TSLA) CEO Elon Musk. “And you can’t grow faster than that.”
So, as Tesla’s output increases steadily, its competitors will benefit from increased production.
Last month, China’s car sales grew by 25.7%. EV sales almost tripled by 281.4% year-on-year to 158,000 units. As a dominant brand in the region, Nio will likely report continued unit sales strength in the quarter and the year ahead.
In the United States, projections of record sales this year are good news for Nio stock. Edmunds’ executive director of insights expects more EV models in the country. That is on top of the massive growth in EV unit availability in the market.
Nio’s strength excludes its almost-certain improved prospects once it moves into U.S. markets. Still, since those plans are a long way down the road, investors may only imagine the total global revenue potential in the next few years.
To fund its expansion, Nio sold shares to raise cash several times. This is lifting its cash on hand. In the near-term, the company may lower development costs while enjoying higher sales from word of mouth in China.
Once it becomes profitable, Nio could invest its positive free cash by entering the U.S. market.
Easing U.S. and China Tensions
With a new Democratic administration, trade tensions between the U.S. and China may ease. Relaxed policies, such as freer trade and lower tariffs, may encourage Nio and Chinese EV makers to enter the U.S. market.
Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV) are also flush with cash. If either company considers the U.S. market, Nio will have to follow suit. Nio faces geographic risks by restricting itself to the Chinese market. For example, the government may issue tougher regulations. It may revise its incentives, too. Last year, China cut its new electric vehicle subsidies by 10%.
On Wall Street, Nio’s most recent rating comes from Deutsche Bank. The $70 price target is above the average $65 (per Tipranks). Astute readers may number crunch a fair value model for Nio shares. In a five-year discounted cash flow model, Nio must post revenue growing by at least 55% until the year 2024. In this scenario, Nio shares are worth almost $60.00.
A Look at the Charts and Your Takeaway
In the chart, Nio scores better on quality than XPEV or LI. For now, the market is setting a higher market capitalization for Nio than the other two.
Investors still need to watch for Xpeng and Li Auto offering nicer-looking designs or better technology. Nio will need to protect its moat in the future.
For now, its battery swap program gives its customers convenience. They do not need to wait at charging stations.
The leasing service also cuts the unit prices of Nio EVs and increases its affordability.
Nio traded as low as $2.11 just as the pandemic unfolded in China. Back then, bears speculated that it would file for bankruptcy. Now that China is the only country in full control of preventing the pandemic, customers are ready to spend.
EVs are a hot “must-have” item that will only gain in popularity. The rest of the world will follow by embracing the EV revolution.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.