The rise of electric vehicles has made Nio (NYSE:NIO) a winner this year. Nio stock has benefitted by growth driven largely by the negative effects of climate change which has led more countries to adopt electric cars.
![A Nio (NIO) store at night in Shanghai, China.](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
For instance, in China, where Nio operates, nearly 40% of the vehicles sold are expected to be electric by 2030. The country also plans to remove all internal combustion engine (ICE) vehicles by 2035.
This signals a growing trend among vehicle manufacturers as they place greater emphasis on environmental impact when developing new models.
The mindset shift bodes well for Nio, a company that many refer to as the “Tesla (NASDAQ:TSLA) of China.” With rapid expansion plans in the pipeline and a growing customer base, I am very bullish on Nio stock.
Nio Stock Loses Steam
Shares of Nio have been on the decline going from $60 in January to around $46 today. This dip is partly due to a broader market selloff as rising bond yields continue to unnerve investors. These yields lower the value of future earnings for companies, making high-growth stocks like Nio less appealing.
Some have also attributed the selloff to the EV bubble. Stocks in the sector experienced massive growth in the last 12 months, with Nio going as high as 1000%. The recent selloff is just as likely a pullback from these inflated values.
However, the falling share prices are just a correction of the broader markets. This means that Nio as a business still carries a lot of value. The company has been growing rapidly in the past year and offers a healthy amount of quality and innovation.
Moreover, Nio holds a strong performance record, beating its estimated deliveries for FY20. In the month of January total deliveries amounted to 7,225 vehicles which is up 352% from a year ago.
Fueling this momentum are the growth prospects that lay ahead for Nio. In its upcoming lineup, the EV maker is set to release the ET7 in the first quarter of 2022. The car will have an autonomous driving feature powered by technology from Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM).
The ET7 is the first of its kind for Nio and will allow it to compete directly with Tesla as electric vehicles go mainstream.
On the expansion front, the company is looking to enter the U.S. market according to a post on LinkedIn. This will give Nio access to a wide target market and add significantly to its bottom line.
The Growing Momentum of Electric Vehicles
In addition to Nio’s internal expansion plans and long-term tailwinds, it’s worth considering the broader EV market for a second. In the last couple of years, EVs have become a force of nature in the automotive world. With greater awareness of the effects of climate change, many companies are putting their capital towards these types of vehicles.
Established automakers like Ford (NYSE:F) and General Motors (NYSE:GM) are jumping on the bandwagon as well. Ford introduced its Mustang Mach-E last year and GM is looking to go fully-electric by 2035. The mass electrification of the age-old auto industry was a long time coming, and Nio is among the companies leading the charge.
This growing momentum is amplified by investor optimism toward the EV market.
Wall Street is bullish about EV growth which has resulted in eye-popping valuations for companies in the sector. With electric vehicles expected to go mainstream in the coming years, this rally isn’t slowing down anytime soon.
Furthermore, the Biden administration has thrown its support behind electric vehicles, promising to build 500,000 charging stations by 2030. As a leader in an industry that shows a lot of long-term potential, Nio is well-poised to generate strong returns in the coming years.
The Bottom Line
The market is largely bearish towards electric automakers right now but this does not reflect negatively on the automakers themselves.
Nio has a lot going for it but the company is overvalued at its current price. The EV maker’s market cap is twice that of Ford’s which has been around for much longer. The recent sell-off is just a correction of the markets and not a major cause for concern.
Investors should instead focus on the fundamental growth value of Nio stock which is still strong. The company is currently working on the second generation of charging stations that can handle a larger capacity of vehicles.
With numerous bullish tailwinds, Nio is a great buy on the dip. Stay on the lookout for the company’s quarter earnings which are expected on March 1.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.