This manufacturer of electric vehicles (EVs) was bombing along in 2021 until the wheels fell off in mid-January. In no time flat – 36 days of trading to be exact – NIO stock had gone from a 52-week and all-time high of $66.99 to a 2021 low of $31.91.
But just like that, Nio shares shrugged off their lethargy, regaining most of the losses in March. Trading up more than 7% around $44.50, I’m wondering if this the beginning of a move back to the $60s?
Let’s consider the arguments for and against a return to the $60s.
NIO Stock Is Headed Back to the Promised Land
The only other time Nio’s share price got close to the $60s since it went public in September 2018 was last November. At the time, it got as high as $57.20 before losing momentum toward the end of the year.
In total, NIO stock has closed at $60 or higher on nine occasions in its entire 30-month existence as a public company. That’s less than 2% of the time. The odds of it putting together a multi-day string of gains as it did frequently in 2020 seem remote.
However, a recent note from Mizuho analyst Vijay Rakesh suggests the possibilities are higher than you might think. The analyst initiated coverage of the EV maker on March 11 with a “buy” rating and a $60 target price.
“Nio has a key differentiation from peers: a premium EV offering with a lower cost of ownership through its novel Battery-as-a-Service (‘BaaS’) battery swap module,” Rakesh wrote.
“While Nio is focused on the premium EV segment, a China subsidy and an innovative BaaS program make Nio’s cars eminently affordable compared to competing brands, such as Tesla.”
Between the subsidy and battery swap program, a Nio buyer can save between 35% to 50% of the upfront costs.
If I offered you the opportunity to buy a quality S&P 500 stock at 35% to 50% off, I’m confident you would be very interested. One only needs to look at what happened in March 2020 to realize the importance of buying when such a discount exists.
I think we’ll see as the year plays out that Nio’s BaaS program will help maintain its rate of growth on its deliveries. Further, if it gains traction in Europe as it has in China, $60 will be the floor, not the ceiling.
NIO Will Trade in a Tight Range Between $40 and $50
One of my favorite reads at InvestorPlace is Josh Enomoto. He has a surgeon-like ability to get to the heart of a matter while also taking a big-picture view of the world. It’s not easy to do both well at the same time.
Recently, Josh suggested that investors interested in buying NIO stock wait for further deterioration of its share price. When my colleague’s article hit the internet on March 4, Nio’s shares had lost approximately 20% of their value over the previous month. As I write this, Nio has lost almost 33% of its value over the past month through March 10.
It’s trending downward.
Interestingly, Enomoto brings up Nio quality issues that were surfacing pre-pandemic, that seemingly have gotten buried during Covid-19 and Nio’s impressive 1,000%+ run over the past year.
I don’t think there’s any question that the EV manufacturer’s share price has struggled to find direction in 2021. Josh’s prediction that we could be looking at a significantly discounted stock price in the not-to-distant future is not a crazy statement.
The reality is that since 1928, the S&P 500 has only had four consecutive years of gains on five occasions, the most recent being a four-year run from 2003 through 2007.
Up 3.8% year-to-date and facing a historical record that doesn’t bode well for the index. It would seem my colleague might be onto something.
The Bottom Line
In mid-February, I suggested that Nio had an excellent chance of moving from the globe’s fifth-largest automaker into third place behind Tesla (NASDAQ:TSLA) and Toyota (NYSE:TM). Since then, Nio’s dropped two spots to seventh place.
Despite the slip, I feel like it is feasible for Nio to deliver 100,000 vehicles in 2021.
In January, Nio delivered 7.225 vehicles. The company delivered 5,578 in February, 689% higher than a year earlier. In 2020, it delivered 43,728, more than double the amount in 2019. It will be a stretch, but I’d be shocked if it didn’t at least get to 90,000 by the end of the year.
Like my colleague, I’m nervous about what lies ahead in 2021, regardless of the $1.9 trillion stimulus package. For this reason, I would be patient when finding your entry point.
Long term, I don’t think you’ll be disappointed, but $60 might not be in its near-term future.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
